Manufacturing drags in Canada, but U.S. bounces higher

Business is looking up for the manufacturing industry in the U.S., but in Canada the picture is not so rosy, according to two indices released today.

The U.S.-based Institute for Supply Management said its manufacturing index rose to 55.4 in May from 54.9 in April, an acceleration in growth for the sector as it recovers from the harsh winter.

In Canada, the RBC manufacturing purchasing manager's index slid to 52.2 in May, down from 52.9 the previous month and 53.3 in March.

While any index reading over 50 indicates growth, the slowing momentum in Canada reflects a moderation in new output growth and a relatively low level of new orders.

Canadian exporters experienced the slowest rise in new business from abroad since the current period of economic expansion began in April 2013, however, companies that reported a rise in new export work cited rising demand from the U.S.

That bodes well for Canada later in the year as the U.S. recovery takes shape.

TD economist James Marple is expecting a strong bounce back in the U.S. in the second half.

We expect economic growth to rise to an above potential rate of around 3.0% over the second half of this year. Growth will rely heavily on domestic demand, especially residential and non-residential investment. In this regard, the acceleration in manufacturing activity in May is an encouraging sign, he said in a note to investors.

In one note of caution, U.S. manufacturing employment did not expand as quickly as expected and factory managers in chemicals, machinery and wood products spoke of significant capacity that has not been taken up.