Canadian factory activity shrinks less drastically in May

TORONTO, June 1 (Reuters) - Canadian manufacturing activity contracted for the third straight month in May as the coronavirus crisis slashed demand from domestic and export markets, but the pace of decline was less severe than in April, data showed on Monday.

The IHS Markit Canada Manufacturing Purchasing Managers’ index (PMI) rose to a seasonally adjusted 40.6 in May from a record low 33.0 in April. It was 46.1 in March. A reading below 50 shows contraction in the sector.

“May data highlights that the Canadian manufacturing sector remains on a steep downward trajectory,” said Tim Moore, economics director at IHS Markit. “A severe drop in demand from both domestic and export markets amid the COVID-19 pandemic resulted in sharp cutbacks to production volumes.”

The output index rose to 33.0 from 22.6 in April, while the measure of new orders was up to 37.9 from 23.9.

“While some survey respondents commented on a gradual reopening of manufacturing supply chains, business operations were still adversely impacted by longer lead times for critical inputs and low stocks among suppliers,” Moore said.

The measure of suppliers’ delivery times rose to 30.9 from 24.9 in April, while the employment index was up at 32.7 from 25.1.

Canada’s economy shed about three million jobs in March and April combined, while GDP was estimated to have fallen in April by a record 11% month-over-month.

Ottawa is rolling out about C$300 billion in economic support measures, while the Bank of Canada has slashed interest rates to nearly zero and has begun for the first time a large-scale bond-buying program. It is due to make an interest rate decision on Wednesday. (Reporting by Fergal Smith Editing by Chizu Nomiyama)