TORONTO: Canadian factory activity grew at the slowest pace in four months in June as material shortages persisted and inflation pressures rose, but the rate of expansion remained vigorous, data showed on Friday.
The IHS Markit Canada Manufacturing Purchasing Managers’ index (PMI) dipped to a seasonally adjusted 56.5 in June from 57.0 in May. It was the lowest reading since February but holding well above the 50 threshold which shows growth in the sector.
The data “continued to highlight a robust expansion,” Shreeya Patel, an economist at IHS Markit, said in a statement.
“A record uptick in pre-production inventory holdings suggests firms are gearing up for another busy quarter while a rise in backlogs could see job creation continue,” Patel added.
The measure of pre-production inventories rose to the highest in data going back to October 2010 at 54.4 from 52.3 in May, while the backlogs of work index was above 50 for the 11th straight month.
Difficulty sourcing skilled workers and material shortages were reported by firms as factors delaying production, IHS Markit said.
Trade deficit surprise
Canada posted a surprise trade deficit of C$1.39 billion ($1.12 billion) in May, missing analyst expectations of a small surplus, as imports increased and exports fell, Statistics Canada data showed on Friday.
Analysts polled by Reuters had predicted a surplus of C$370 million following a revised C$460 million surplus in April.
Imports jumped 2.1%, mostly on imports of metal and non-metallic mineral products, which reached a record level in May, Statscan said. Imports of consumer goods also jumped, with pharmaceutical imports - including Covid-19 vaccines - contributing.
Exports, meanwhile, dropped 1.6% in May, with exports of motor vehicles and parts falling again as the global semiconductor chip shortage continued to hit production. There was also a plunge in exports of consumer goods as April’s seafood surge reversed.
While exports were weaker than expected, it was largely due to global supply disruptions rather than weakening demand for Canadian products, economists said.
“With the rise in imports boding well for domestic demand, the Bank of Canada remains on track to taper its asset purchases again this month,” Stephen Brown, senior Canada economist with Capital Economics, said in a note.
Canada’s central bank will update its forecasts in its regular interest rate decision on July 14. The Canadian dollar was up 0.5% at 1.2379 to the US dollar, or 80.78 US cents, on Friday.
Global supply chains have been stretched during the Covid-19 pandemic, with the reopening of some major economies adding to the stress. After a harsh third wave of the virus, Canadian provinces have begun easing restrictions on activity in recent weeks. Costs rose with the input price index matching May’s reading for the highest since August 2018.
“Price pressures continued to mount in June ... firms will hope that material availability improves over the course of the year,” Patel said.
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