Canadian factory activity slips back into contraction in May

Container ships dock at Roberts Bank Superport in Delta

By Fergal Smith

TORONTO (Reuters) - Canadian manufacturing activity slowed in May as high inflation and inventory cutting held back customer demand, but in a silver lining the reduction in activity contributed to an easing of supply pressures, data showed on Thursday.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to a seasonally adjusted 49.0 in May from 50.2 in April.

A reading below 50 indicates contraction in the sector, with the PMI oscillating around that level in recent months.

"A weak underlying demand profile weighed on the Canadian manufacturing sector during May, with production dropping since April and purchasing activity cut," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

The new orders index fell to 48.6 from 49.0 in April as firms said that high inflation had squeezed client budgets and that spending was cut in an effort to lower inventories.

The measures for stocks of inputs and purchasing activity both posted readings that showed contraction for a tenth straight month.

Reduced purchasing activity "has had some further positive impact on supply chains, and with the challenges related to the pandemic now principally unwound, lead times improved for the first time in nearly four years," Smith said.

"Whilst there remain some residual output price increases still being recorded in the sector it feels that inflation challenges in manufacturing are now coming to an end."

The suppliers' delivery times index rose to 50.9 from 49.6 in April, its first move above the 50 threshold since August 2019, while the input prices index showed a drop in prices for the first time since July 2012.

(Reporting by Fergal Smith)