Canadian factory PMI shows activity edging up in April

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FILE PHOTO: Honda's auto manufacturing plant in Alliston

By Fergal Smith

TORONTO (Reuters) - Canadian manufacturing activity expanded slightly in April as output and employment rose, but new orders remained a drag as firms grappled with an uncertain outlook for the economy, data showed on Monday.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) rose to a seasonally adjusted 50.2 in April after hitting 48.6 in March, its lowest level since June 2020. A reading above 50 indicates expansion in the sector.

"Although Canada's manufacturing sector returned to growth in April, it did so only marginally with underlying data suggesting the recovery remained on shaky ground," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

"Clients are hesitant in their spending decisions, unsure of the direction of the economy at a time when prices remain high."

Canada's economy likely grew 2.5% on an annualized basis in the first quarter but the Bank of Canada has forecast that higher borrowing costs will crimp growth for the rest of the year.

There was a return to factory production growth in April, with the output index rising to 50.6 from 48.1 in March. The employment measure was also a bright spot, increasing to 52.1 from 51.5.

But the new orders index remained in contraction even as it improved to 49.0 from 46.5. Sales to foreign clients have declined for 11 straight months.

The combination of sluggish demand and increasing prices - the input prices index was at a four-month high of 59.2 - weighed on confidence and led to firms growing more cautious holding inventories.

The stocks of finished goods index dipped to 49.8 from 50.2 in March.

(Reporting by Fergal Smith; Editing by Andrea Ricci)