Canadian factory activity decelerates as capacity constraints weigh

Workers make jackets at the Canada Goose factory in Toronto

TORONTO (Reuters) – Canadian manufacturing activity expanded at a slower pace in April as the war in Ukraine contributed to pressures on capacity and cost, offsetting continued robust demand, data showed on Monday.

The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 56.2 in April, pulling back from a survey-record high of 58.9 in March. A reading above 50 shows growth in the sector.

“Demand conditions were supportive and continued to underpin a solid improvement in operating conditions,” Shreeya Patel, an economist at S&P Global, said in a statement.

“However, capacity constraints have persisted and firms look to be struggling with labour shortages. Recent geopolitical developments have also exacerbated costs, particularly for fuel and raw materials.”

Western sanctions imposed on Russia over its invasion of Ukraine have disrupted oil supplies globally, driving prices higher. Moscow calls its Ukraine action a “special military operation”.

Backlogs of work climbed for the 21st consecutive month as firms reported material scarcity, truck shortages and freight delays, as well as difficulties sourcing skilled labour.

The employment index climbed to 54.5 from 53.2 in March, while the measure of input prices remained elevated amid reports of higher charges for transportation, material and fuel.

Firms remained upbeat about prospects for output growth over the year ahead but the degree of optimism moderated from March and was below the average for the series.

(Reporting by Fergal Smith; Editing by Chizu Nomiyama)