By Robb M. Stewart
Activity among Canadian manufacturers took a step back last month, with dips in new orders and production along with some signs supply chains have been disrupted by the Iran war, data showed Wednesday.
The S&P Global Canada manufacturing purchasing managers index slipped in March to 50, putting the measure on the threshold between reflecting expansion and contraction. It comes after the index rose in February to 51, a second straight month of modest growth after a year in contraction territory for an industry that has been hit hard by trade policy uncertainty and tariffs.
"The conflict in the Middle East, which had a relatively muted impact on the Canadian manufacturing sector compared to regions like Europe in March, has understandably raised the level of uncertainty in the outlook," said Paul Smith, economics director at S&P Global Market Intelligence.
With tariffs still a concern for many manufacturers, confidence regarding production in the year ahead fell to a three-month low and remained well below its average level, Smith said.
That uncertainty in the outlook led to a reluctance among companies to replace job leavers at plants during March, S&P Global's poll showed. It also noted reports of company restructuring and an adjustment in operating capacity to match subdued trends in orders and production, which contributed to a net fall in manufacturing employment for the first time in three months.
Canada's economy is on track to show modest growth in the first quarter of the year, before the full shock of higher oil prices and the fallout from the Iran war are felt. Gross domestic product edged up 0.1% in January from a month earlier as growth in oil and gas extraction and in construction helped to counter a pullback in manufacturing, and advance data from Statistics Canada indicates the pace accelerated to 0.2% growth in February as the automotive industry recovered from extended winter shutdowns at Ontario assembly plants.
With its decision last month to again leave interest rates steady, the Bank of Canada said it is too early to assess the impact of the Iran war on growth in Canada, though it cautioned that if oil prices remain high that would boost income from energy exports while at the same time squeezing consumers and leaving them with less income for other spending.
S&P Global said manufacturing production fell during March for the first time so far this year, and some firms noted delays in production due to slower delivery of inputs. Supplier delivery times showed another marked lengthening in the month, and overseas shipping delays and supply-chain disruption were widely linked to war in the Middle East, it said.
This led manufacturers to make use of existing inventories in production and meant there was a slight decline in stocks of inputs. Alongside some reports companies were deliberately using existing supplies rather than buying new items, this led to a marginal contraction in purchasing activity, S&P Global said.
Smith said tariffs remained a source of demand weakness in March, especially with clients based in the U.S. New export volumes were down for a 14th consecutive month.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
04-01-26 1044ET
