Cracks appeared in the economic recovery, at least in this country's manufacturing sector, according to figures released this morning by RBC.
The March RBC Canadian Manufacturing PMI fell to 49.3 which more than reversed the rise in the February index to 51.7 from 50.5 in January. As well, this represented the first time since the series was first compiled in October 2010 that it has dropped below the "50-mark" indicating a deterioration in business conditions.
Respondents indicated a weakening in client demand both at home and abroad. This weakening may have in part reflected uncertainty about the external environment and the impact on the Canadian economy of the U.S. sequestration (i.e., mandated expenditure reductions) that was invoked March 1. However, with various U.S. economic indicators such as employment and retail sales flagging a strengthening in growth early in 2013, this deterioration in Canadian manufacturing sentiment is expected to prove short-lived.
The deterioration in the overall index reflected downward pressure among all five sub-components. The new orders index dropped to 48.0 from 52.0 in February. Falling new orders was mirrored by the output measure similarly falling in March to 48.1 from 51.8 the previous month. The employment measure managed to stay above the 50 mark at 51.4 indicating that firms were continuing to take on additional workers though the pace of hiring slowed slightly given February’s reading of 51.9.
Canada's largest bank goes on to say that delivery times continue to slow with an index reading below 50 at 48.4 though the slowing was less pronounced relative to the February index level of 47.2. (The delivery times measure enters inversely into to the overall PMI measure.) Finally, the stock of purchases measure dropped to 48.4 in March from 48.8 in February which indicated an even greater depletion of input stocks in March relative to February.
RBC economists registered their disappointment with the numbers, but added one caveat.
"With the U.S. data surprising on the upside in the first quarter, any weakening in external demand should prove temporary. With strong employment growth domestically, our expectation is that the PMI index is likely to bounce back over the 50 mark in the months ahead."
