Canadian manufacturing PMI contracts in March

Tue Apr 2, 2013 9:29am EDT

* PMI falls to 49.3 in March from 51.7 in February

* First contraction since data series started in 2010

* New orders slip, pushing output down; job growth slows

By Alastair Sharp

TORONTO, April 2 (Reuters) - Canada suffered a surprising contraction in manufacturing activity in March, according to data released on Tuesday, suggesting the economy has not yet shaken off the slowdown it suffered in late 2012.

The RBC Canadian Manufacturing Purchasing Managers' Index was at 49.3 last month after adjusting for seasonal variation, down from 51.7 in February. A reading above 50 represents expansion, while a number below 50 means contraction.

It was the first contraction since data collection for the indicator began in October 2010.

"The deterioration in the Canadian manufacturing measure is surprising in the face of improving growth in both the U.S. and various emerging economies," Royal Bank of Canada's chief economist, Craig Wright, said in a statement accompanying the data.

"This weak spot should be short-lived, however, as we expect that global demand for Canadian exports will recover, providing a welcome boost for domestic manufacturers."

Recent data has reinforced the view that the U.S. economy is perking up, although it still appears vulnerable to fiscal austerity measures that kicked in early in the year.

The RBC manufacturing report showed output and new orders fell to the lowest levels in the indicator's history, while input prices remained stubbornly high, with a rise in raw material prices and an unfavorable exchange rate blamed for the cost burden.

The Canadian dollar weakened significantly in February and only pared some of those losses in March, making it more costly for Canadian factories to import raw goods but aiding exports of finished products.

"The Canadian manufacturing sector took a turn for the worse in March," Cheryl Paradowski, who heads the Purchasing Management Association of Canada, said in a statement.

She added that weak demand both domestically and in major export markets weighed on output and pushed many manufacturers to scale back hiring.

Overall employment in the sector notched higher, but the rate of growth was more subdued than in previous months, and Alberta and British Columbia recorded job losses.

Those Western Canadian provinces also suffered the sharpest falls in production and a moderate deterioration in overall business conditions.

Alberta's finance minister told Reuters on Wednesday that the province's economy was growing and would continue to do so.

Last week, Statistics Canada said gross domestic product bounced back in January after a year-end slump, thanks in part to a comeback in manufacturing, while inflation also rose.

But economists remain skeptical about the central bank's projection of 2.3 percent GDP growth in the first quarter after ending 2012 with the weakest six months since the 2008-09 recession.

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