UPDATE 2-RBC PMI shows modest Canadian manufacturing growth

Tue Aug 2, 2011 11:52am EDT

* PMI rises to 53.1 in July from 52.8 in June

* First increase for index after 3-month decline

* New orders rise, while employment growth slows (Adds details)

By Claire Sibonney

TORONTO, Aug 2 (Reuters) - The pace of Canadian manufacturing increased in July for the first time in four months as new orders picked up, though the high-flying Canadian dollar tempered some of the momentum, data released on Tuesday showed.

The RBC Canadian Manufacturing Purchasing Managers' Index, launched earlier this year by Royal Bank of Canada (RY.TO) and produced by research firm Markit, rose to 53.1 in July from 52.8 in June.

The latest reading was above the level of 50 that separates growth from contraction.

The PMI is produced with input from the Purchasing Management Association of Canada. Data collection from about 400 companies, big and small, began in October 2010.

"The uptick in the new orders index that indicated a solid rate of expansion, coupled with improved business conditions across the country, bode well for Canada's manufacturing sector overall," Paul Ferley, assistant chief economist at Royal Bank of Canada, said in a statement.

The new orders index rose to 53.47 in July from 52.15 in June.

Cheryl Paradowski, chief executive at the Purchasing Management Association of Canada, said the index mainly reflected stronger demand in Canada. New export orders increased only marginally during the latest survey period.

"Meanwhile, although input price inflation eased to a seven-month low in July, surveyed firms particularly mentioned fuel and transport as increasing in cost," she added in a statement.

Overall, the data showed the rate of expansion in manufacturing activity was solid and slightly faster than that registered in June, which also reflected a rise in output.

The report also showed that the manufacturing sector added jobs in July, but the rate of employment creation actually eased to the slowest since November.

Ferley warned that modest gains in production and the strong Canadian dollar may offset some of the momentum in the sector in the second half of the year.

Canadian manufacturers have had an uneven recovery since the financial crisis. Export-reliant manufacturers have struggled with weak U.S. demand and the high-flying domestic currency, which has made their goods more expensive in foreign markets.

Data on Friday showed the Canadian economy shrank unexpectedly in May as bad weather, a strong Canadian dollar, and weak U.S. demand took a toll. [nN1E76S093] (Editing by Peter Galloway)

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