Toronto — Canadas manufacturing sector report points to signs of a solid rebound in June, according to a monthly survey by Royal Bank.

The harsh winter is cited as reasons for a lull in previous months disappointing readings. However, the RBC manufacturing purchasing managers index (PMI) came in at its highest level this year at 53.5 in June, up from 52.2 in May.

A reading higher of 50 indicates growth.

The latest RBC PMI data indicates that in June, Canadas manufacturers experienced the best conditions for growth in half a year, said Craig Wright, senior vice-president and chief economist at RBC. We expect that those conditions will further improve going forward supported by a strengthening global economy, increases in external demand for domestic goods and a depreciating Canadian dollar.

The survey said that manufacturing output grew from May, which was a nine-month low, mainly due to greater client spending and new product launches. Business growth was also helped by stronger domestic and U.S. demand. It also noted that payrolls expanded at a good pace in June, rising to 52.6 in June, up slightly from 52.4 in May.

The headline RBC PMI reflects changes in output, new orders, employment, inventories and supplier delivery
times.

Key findings from the June survey include:

Output and new orders rose at sharpest pace in 2014 to dateJob creation strengthenedInput cost inflation eased for the third month running

Manufacturers mainly cited stronger domestic demand, as new export order growth remained only marginal, despite accelerating from the 14-month low registered in May. When a rise in new work from abroad was reported, survey respondents generally pointed to improved demand from clients in the United States.

Staffing levels increased at a solid pace in June, thereby extending the current period of manufacturing job creation to five months. Despite an upturn in payroll numbers, stronger demand resulted in the fastest rise in backlogs of work since March.

Greater production requirements boosted input buying across the manufacturing sector in June, with the latest expansion of purchasing activity the fastest seen in 2014 to date. Stocks of purchases nonetheless dipped slightly in June, which contrasted with a marginal rise in post-production inventory levels.

Canadian manufacturers indicated that input prices increased for the twenty-third consecutive month in June. The latest survey pointed to a sharp rise in average cost burdens, but the rate of inflation was the lowest since the start of the year. A number of firms cited exchange rate depreciation against the U.S. dollar as having pushed up prices for imported raw materials. There were also reports of rising oil-related costs in June. Meanwhile, factory gate price inflation eased for the second time in the past three months and was the lowest since December 2013.

Regional highlights include:
Quebec posted the fastest overall improvement in business conditions……followed by Alberta & British ColumbiaAll four regions registered a rise in new export ordersEmployment growth was strongest in Quebec and Ontario

“The second quarter of 2014 ended on a positive note for the Canadian manufacturing sector,” said Cheryl Paradowski, president and chief executive officer, SCMA. “Stronger business conditions were underlined by the fastest expansion of output so far this year, alongside a solid rebound in client spending. Manufacturers are continuing to recruit additional staff at a solid place, highlighting strong confidence about the outlook for production volumes over the months ahead.”

The report is available at www.rbc.com/newsroom/pmi.
Source: Markit, the financial information services company