This week's global purchasing managers' indexes (PMIs) are giving some of the strongest signals yet that Canada's economy has emerged from its early-2014 slumber and is picking up speed. Not only are Canada's long-suffering manufacturers stepping on the gas pedal, but the markets most critical to Canadian exporters are also the places set to deliver some of the strongest growth in activity and output.
The RBC Canadian Manufacturing PMI, which measures business activity among Canadian manufacturers, rose to 53.5 in June, its highest reading in six months. (PMIs are so-called "diffusion" indexes, in which any reading above 50 indicates expansion of activity, and readings below 50 signify contraction.) The index's three major components – production output, employment and new orders – all rose to their highest levels since the end of last year. Input purchases – i.e. the buying of materials needed for future production – rose to their highest levels of the year, which, combined with the rise in new orders, suggests further output growth is on the way.
The report, released Wednesday morning, is one of many produced by Markit Economics Ltd., which tracks PMIs around the world. These indexes may not be widely known or understood in the general public, but economics and financial-market watchers have come to rely on manufacturing PMIs as valued indicators of where the economy is headed. Rising manufacturing activity is a reliable signal of growing demand.
And Markit's June PMIs paint a picture of growing momentum in the world's manufacturing output. The J.P. Morgan Global Manufacturing PMI, released Tuesday, posted a four-month high of 52.7. Output, new orders, employment, and prices (both for inputs and outputs) were all up.
Granted, 52.7 is not a historically high level for the Global PMI (nor is Canada's 53.5 any more than mid-range by historical standards), but the upward trend is nevertheless suggestive of improving demand. And for Canada, the good news is where the strength in the global index is coming from.
While the euro zone and many emerging markets continued to sputter, Markit noted that the U.S. economy – by far Canada's biggest export market – is the main driving force behind the Global PMI improvement. The Markit U.S. Manufacturing PMI hit 57.3 in June, its highest in more than four years. Output and new orders hit their highest levels since April, 2010. In China, a critical market for both demand and pricing for the natural-resource commodities Canada produces, PMI edged above 50 for the first time in six months, indicating Chinese manufacturing has returned to growth.
Taken all together, the PMIs are increasingly pointing to the kind of growth the Bank of Canada keeps looking for when it talks about a sustained acceleration of the Canadian economy. We have evidence of growing demand in our key export markets. And we have signs of businesses expanding their output at home – a step on the road to increased business investment. Meanwhile, the employment indicator in the Canadian PMI could signal some upside for Canada's recently anemic labour market.
It's still a tough call whether the early-year sluggishness in Canada's economy can be blamed largely on the unusually harsh winter; after all, Canada's PMI was actually weaker in April and May than it had been in March, suggesting there was more to the slowdown than snowdrifts. But regardless of the reason, the anticipated pick-up as the year progresses does, indeed, seem to be unfolding.
David Parkinson