Canadian factory sector grows on likely war-linked stockpiling

Honda employees work along the vehicle assembly line before an event announcing plans for a Honda electric vehicle battery plant in Alliston, Ont., on Thursday, April 25, 2024.

TORONTO, June 1 - Canada’s manufacturing sector expanded for a second straight month in May as the potential for higher prices and product shortages due to the war in the Middle East likely boosted client demand, data showed on Monday.

The ‌S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) edged down to 52.9 last month from 53.3 in April. Still, it remained above the 50 threshold, indicating expansion in the sector. The PMI has been at or above 50 since January.

“Canada’s manufacturing economy registered a solid expansion during May, underpinned by further rises in both output and new orders,” Paul Smith, economics ⁠director at S&P Global Market Intelligence, said in a statement.

“Firms reported a general upturn in demand and success in securing new customers, despite ongoing anecdotal evidence that tariffs and the uncertainty caused by the war in Iran were weighing on product markets.”

The new orders component was at 53.9, edging down from 55.0 in April, while the measure of employment rose to 51.1, marking its highest level since October 2024.

“The uplift in sector performance is likely on balance to have been driven by client efforts to secure goods given worries over price increases and product availability,” Smith said.

The stocks of purchases index rose to the highest level since August 2024 at 51.3, up from 50.7 in April.

Supply chain fragility was evident as firms noted delays on international shipping routes. The measure of vendor delivery times dipped to 44.1 from 45.4 in April, posting the steepest deterioration since October 2022.

Both input and output costs climbed to their highest levels since July 2022, driven by elevated fuel prices. The input price index rose to 66.5 from 64.8 in April and the output price measure was at 62.0, up from 58.1.

Reporting by Fergal Smith; Editing by Chizu Nomiyama