Canadian factory PMI falls to three-year low as output slows

According to data released on Friday, the decline in Canada's manufacturing sector intensified in August, with a decrease in production and new orders. This could indicate that the higher interest rates are affecting the country's economy, causing it to slow down.

The PMI for manufacturing in Canada, as reported by S&P Global, dropped to 48.0 in August. This is the lowest it has been since June of last year when it stood at 49.6.

A score lower than 50 indicates a decline in the industry. The Purchasing Managers' Index (PMI) has remained under that threshold since May.

According to a statement from Paul Smith, who serves as the economics director at S&P Global Market Intelligence, the manufacturing industry in Canada faced ongoing challenges in August. Both the production and the influx of new orders experienced significant declines.

Companies reacted by reducing their purchases and using up their current stock, and indicated some concerns about the possibility of continued low demand in the upcoming months.

The performance indicator dropped to its lowest point since December at 47.7, decreasing from 51.1 in July. Additionally, the index measuring newly placed orders also recorded a reading of 47.7, declining from 49.2.

The decline in demand was focused mainly on the local market, while the indicator for new export orders demonstrated growth for the second consecutive month.

In July, the Bank of Canada increased its policy rate to the highest level in 22 years, standing at 5%. Additionally, the Canadian economy has faced challenges in the past few months due to wildfires and a labor strike involving dock workers at the nation's most bustling ports.

Staffing numbers experienced a decline for the fourth consecutive month, while the persisting inflation pressures led to an increase in both the input and output price indexes, which reached a reading of 53.9.

"Smith stated that even though there were more indications of a stable supply of products and a decrease in demand for resources, inflationary pressures increased due to the fact that businesses at every stage of the supply chain passed on their increased operational costs to their customers."

Written by Fergal Smith and edited by Chizu Nomiyama