MNI INTERVIEW: Canada Faces Prolonged Weakness- Ivey PMI Chief

Canada's economy may remain weak most of this year as the pandemic's second wave slows business spending and deliveries, the head of the Ivey Purchasing Managers Index told MNI on Thursday.

"We're not anywhere close to being out of it," said Fraser Johnson, who compiles the index and teaches supply chain management and operations at the Ivey business school at Ontario's Western University. "I expect probably summer, fall, before we start to work our way out of this."

The headline PMI fell to 46.7 in December, its first time below the 50 mark that divides expansion and contraction since May around the first-wave Covid lockdown. The report is one of the first looks at the economy through the end of the fourth quarter, a time when the Bank of Canada and investors see only marginal growth and a potential stall as local governments resumed harsh restrictions.

One day before Canada reports jobs data for December, the Ivey employment reading signaled weakness with a decline to 45.8 from 48.1, again the furthest below 50 since May. Economists predict Statistics Canada's report Friday will show employment falling 30,000, the first decline since spring.

The supplier delivery measure, which Johnson said is one of the strongest measures of future activity, fell for the third time in four months, to 30.1 in December from 34.3 in November. "If suppliers start extending deliveries, that tells me that suppliers have capacity problems," Johnson said.

DELIVERY SLOWDOWN

Trouble moving goods within Canada and from abroad also likely explain a rise in the price index to 66.9, he said, the highest since October 2018.

The headline PMI is now about halfway between the record low of 22.8 set last April and the rebound to 68.5 in July.

Part of the latest weakness is linked to Covid disrupting the seasonal pattern of traditionally strong December activity, Johnson said. The unadjusted index rose to 53.9 from 52.4. But economic damage from the second wave appears to be more modest because of the response from health officials, government and industry, he said.

"Government has figured it out in terms of the levers to pull and some of the trade-offs I think; businesses have put in precautions," Johnson said.