Canadian manufacturing growth hits 5-month low amid supply constraints

TORONTO (Reuters) - Canadian factory activity in July grew at the slowest pace in five months as supply chain pressures brought on by the coronavirus pandemic weighed, according to data released on Tuesday, but the rate of expansion remained firm.

The IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 56.2 in July from 56.5 in June. It was the lowest reading since February but still well above the 50 threshold which shows growth in the sector.

"Another robust improvement in operating conditions was seen across Canada's manufacturing sector in July," Shreeya Patel, an economist at IHS Markit, said in a statement. "A further easing of virus-related restrictions and greater consumer confidence encouraged domestic demand."

The measure of output rose to 54.4 from 53.8 in June, while the new orders index was at 55.3, edging up from 55.1.

Delivery delays and material scarcity made it difficult for firms to keep up with demand. The backlogs of work index climbed to the second highest in the series history at 56.0 from 53.6 in June and cost pressures continued to rise.

Still, strong demand allowed some costs to be passed on, with the measure of output prices rising to 65.2 from 64.9 in June, and firms remained upbeat about prospects for growth.

"With the vaccine rollout gaining momentum, and case numbers declining, a busy second half of the year is sure to follow," Patel said.

More than 81% of Canadians eligible for COVID-19 vaccines have had one shot, and more than 66% are fully inoculated.

(Reporting by Fergal Smith; Editing by Paul Simao)