Canada’s manufacturing sector continued to expand at a solid pace in December. Growth was supported by simultaneous gains in both output and new orders, while employment also continued to rise. Despite some evidence of firmer demand from U.S. customers ahead of expected 2025 tariffs provided by the survey, overall exports were little changed. Meanwhile, postal and port strikes led to a worsening deterioration in vendor performance, while also leading to a record high in finished goods inventories.
The seasonally adjusted Canadian Global Manufacturing PMI remained above the crucial 50.0 mark in December to indicate sector growth for the fourth straight month. The PMI rose to 52.2, from 52.0 in November, just below its long-term average of 52.4.
The December PMI was supported by simultaneous gains in output and new orders. Growth rates were again strong, as businesses noted a general uptick in demand. In some cases, panelists reported better sales to U.S. customers, in line with inventory build-ups ahead of expected U.S. tariffs on Canadian goods in 2025. A weaker Canadian dollar also helped support sales.
However, overall export demand remained disappointing, according to several panelists, and overseas sales ended slightly lower in December.
Manufacturers remained suitably encouraged by production trends and new orders to increase their purchasing activity (albeit slightly) for the first time since July 2022. Input inventories rose slightly as a result, but the increased demand for goods put some pressure on sellers.
Average delivery times deteriorated the most since August amid reports that postal and port strikes were adding pressure on domestic supply chains. These factors also meant that companies were struggling to ship their own products and helped explain why finished goods inventories rose at a record pace in December.
What is the Canadian Manufacturing PMI and why does it matter?
The Canadian Manufacturing PMI is an economic indicator that measures the level of activity of purchasing managers in the Canadian manufacturing sector. It is based on a survey of purchasing managers and reflects the overall health of the manufacturing economy. This means that employment rose for the fourth consecutive month overall, albeit at a marginal and weaker pace than at any point since September. Additional capacity helped businesses continue to operate at full capacity, with backlogs of work falling slightly over the month.
Importance of the Canadian Manufacturing PMI:
Economic health indicator: The PMI provides insight into the economic health of the manufacturing sector, a key component of the Canadian economy.
Decision-making tool: Businesses and investors use the PMI to make informed decisions. A rising PMI may indicate economic expansion, while a falling PMI may indicate contraction.
Forecasting tool: Economists and analysts use the PMI to forecast future economic activity. It can be an early indicator of GDP growth trends.
Market sentiment: The PMI affects investor sentiment and can impact financial markets, including stocks and currencies.
Political implications: Central banks and policymakers watch the PMI to guide monetary policy decisions, such as interest rates, based on the performance of the manufacturing sector.
Regulatory changes: New regulations or trade policies can impact manufacturing processes, costs, and demand, impacting the PMI.
Technological advances: Innovations in manufacturing technology can improve efficiency and production capacity, which positively impacts the PMI.
In short, the Canadian Manufacturing PMI is a vital tool for assessing the performance of the manufacturing sector and broader economic trends in Canada
What factors influence changes in the Canadian Manufacturing PMI?
There are several factors that influence changes in the Canadian Manufacturing PMI:
Production levels: Variations in manufacturing output can have a significant impact on the PMI. An increase in production typically leads to higher PMI readings.
New orders: A rise in new orders indicates future production increases, which positively impacts the PMI. Conversely, a decline indicates a potential contraction.
Employment levels: Changes in employment within the manufacturing sector can impact the PMI. Increases in employment may indicate expansion, while layoffs may indicate contraction.
Supplier deliveries: Delays in supplier deliveries can lead to lower PMI readings, as they may indicate supply chain disruptions. Conversely, on-time deliveries can support higher readings.
Inventories: Changes in inventory levels can impact the PMI. Rising inventories may indicate overproduction or low demand, while low inventories may indicate strong demand.
Market Demand: Overall demand for manufactured goods, both domestically and internationally, influences the PMI. Increased demand typically boosts manufacturing activity.
Economic Conditions: Broader economic factors, such as GDP growth, inflation, and consumer confidence, can influence manufacturing performance and therefore the PMI.
Seasonal Factors: Seasonal variations in demand and production can lead to fluctuations in the PMI throughout the year. Struggling to ship their own products and helped explain why finished goods inventories rose at a record pace in December.
Regulatory changes: New regulations or trade policies can impact manufacturing processes, costs, and demand, impacting the PMI.
Technological advances: Innovations in manufacturing technology can improve efficiency and production capacity, which positively impacts the PMI.
Together, these factors shape the overall manufacturing landscape, leading to changes in the Canadian Manufacturing PMI.
