Canadian Manufacturing Activity Declines

By Fergal Smith

TORONTO (Reuters) – Canadian manufacturing activity experienced a notable slowdown in July, with production and new orders falling at accelerated rates. This marks the weakest level of activity for the year and extends a record-setting contraction for the sector, according to data published on Thursday.

The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) decreased to 47.8 in July, down from 49.3 in June, reaching its lowest point since December. This marks the 15th consecutive month that the PMI has remained below the 50.0 threshold, indicating contraction— the longest stretch since data collection began in October 2010.

Paul Smith, economics director at S&P Global Market Intelligence, commented on the disappointing manufacturing data for July: “The latest manufacturing data disappointed in July, with accelerated declines in both output and new orders recorded as we enter the second half of 2024.”

The output index dropped to 45.9, down from 49.7 in June, while the new orders index fell to 45.1 from 48.2. Factors such as high inflation, geopolitical tensions, and shipping difficulties have contributed to an uncertain operating environment.

The measure of new export orders suffered an even steeper decline, falling to 43.5, the lowest level since May 2020.

Employment, however, showed a slight increase, edging up to 50.3 from 49.2 in June. Yet, the future output index, which reflects sentiment, plummeted to a more-than four-year low at 56.7, down from 60.1. Smith remarked, “Although employment growth was sustained, this was on the back of what looks like dwindling hopes for future output growth.”

In response to these challenges, the Bank of Canada announced its second interest rate cut recently, lowering the benchmark rate to 4.50%. Analysts suggest that the central bank is shifting its focus toward stimulating the economy rather than controlling inflation, which raises the possibility of further easing in the upcoming policy decision in September.