- KPB & Co Research
Starting in Q1 of 2019, the Ivey Purchasing Managers Index began to display signs of a resurgence within the context of a more accommodative Bank of Canada monetary policy stance, but over the last 2 months the index have softened. While the July estimate of the index (54.2) show that purchases have increase relative to that of June (52.4), the July estimate is still below the high established during Q1 of 2019 (55.9) and below the level seen in July of 2018. This indicates the possibility that a much more aggressive monetary policy stance is needed to support growth in the Canadian economy.
The slight improvement in the index came on the heels of a solid growth in the employment index which expanded from 52.7 to 56.6. Approximately 28% of respondents to the survey indicated that they hired more persons, while 54.9% indicated that they had the same. This result differs slightly from the unemployment numbers coming from Statistics Canada where the unemployment rate increased marginally to 5.5% in July 2019 coming from 5.4% in June 2019.
While the overall index was pulled up by the expansion of employment, the index was pull down by the reductions to inventories. This was somewhat expected as there was a build up of excess inventories going into the second quarter as consumer demand slowed materially in Q4 2018 and early Q1 2019. As inventory carrying balances normalize, the balances that will be seen in Q3 and Q4 may better reflect ongoing economic fundamentals. Supplier deliveries were also weaker this month with index declining by 2.9 points, reflecting much lower orders than that seen in June 2019. Overall price levels increased but still remain lower than that seen in the same period a year earlier, and is just on par with those seen in Q1 of 2019. With the US Federal Reserves slashing rates and hastily ending the run off of the bond buying program, we could see the Bank of Canada cutting rates at the next monetary policy briefing, thereby further supporting Canadian manufacturing growth.