Morning Market Brief: Wednesday, August 2, 2023

More struggles for Canada’s manufacturing sector 

Canada’s manufacturing sector shrank for a third consecutive month in July. So far, 2023 has proven to be a relatively tough year for Canada’s manufacturing sector, one of the critical components of economic health. The decline in manufacturing activity might be signalling weaker economic conditions to come in Canada. 

• Canada’s manufacturing sector contracted in July but at a slower pace than in June. The S&P Global Canada Manufacturing Purchasing Managers Index rose to 49.6 in July from 48.8 in June. (A reading below 50 denotes a contraction.)
• July’s manufacturing sector activity marks the third straight contraction for Canada and the fourth in the past five months. Slower new orders, a drop in employment and rising costs hindered the sector.
• Canada was not alone in its soft manufacturing sector activity. Manufacturing sector activity in the U.S. contracted for a ninth straight month. In Europe, the manufacturing sector has fallen to its lowest level since 2020. China and Japan also reported poor manufacturing sector activity in July.
• The global manufacturing sector has struggled for traction in 2023, mainly due to a drop in new orders and output. Global demand has been relatively muted amid high inflation and surging borrowing costs, which has put pressure on households and businesses.

Weak manufacturing numbers worldwide have contributed to the slowdown in global economic growth this year. Recent data might be signalling more weakness in global economic conditions. But the struggles in the manufacturing sector could indicate a potentially changing landscape of consumer spending. As we emerge from the pandemic, most spending has been towards more experience- or service-type products rather than tangible goods. Still, demand for several types of products should remain healthy over the long term, making the stocks of many manufacturing companies quality investments.

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