Canadian factory activity grows at slowest pace in two years

Canadian manufacturing activity lost further momentum in July as production and new orders declined for the first time since the early stages of the coronavirus pandemic, data showed on Tuesday.

The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 52.5 in July from 54.6 in June, its lowest level since June 2020. A reading above 50 shows growth in the sector.

The data “revealed another slowdown in operating conditions in Canada’s manufacturing sector,” Shreeya Patel, an economist at S&P Global, said in a statement. “Behind the latest moderation were contractions in both output and new orders.”

Both the output and new orders indexes fell below the 50 threshold for the first time since June 2020, hitting 48.9 and 48.8 respectively. Manufacturers pointed to poor material availability and weak demand.

International demand was a particular drag, with new exporter orders declining for a second straight month and at a quicker rate than in June.

“Firms continue to face sharply rising costs, which have been exacerbated by the war in Ukraine and lockdowns in China,” Patel said.

The input price index dipped to a five-month low of 71.4 but still showing robust growth, while the measure of employment fell to its lowest in 18 months as the rate of job creation slowed.

Firms remained upbeat about prospects for future output but concerns about a possible recession and interest rate hikes tempered optimism, S&P Global said.

The Bank of Canada has raised its benchmark interest rate by 2.25% since March to a level of 2.50%. Money markets expect further tightening in the coming months.