Canadian factory activity climbs to 4-month high on rising demand

TORONTO (Reuters) - Canadian manufacturing activity grew in August at the fastest pace in four months as new orders climbed and firms scrambled to reduce the risk of running out of the stocks they need for production, data showed on Wednesday.

The IHS Markit Canada Manufacturing Purchasing Managers' Index (PMI) rose to a seasonally adjusted 57.2 in August from 56.2 in July. It was the PMI's highest level since April and the 14th straight month above the 50 threshold marking growth in the sector.

"Canada's manufacturing sector recorded another robust improvement in operating conditions in August," Shreeya Patel, an economist at IHS Markit, said in a statement.

"The latest uptick gained momentum from that seen in July after demand in both domestic and international markets rose further."

The gauge of new orders advanced to 55.8 from 55.3 in July, while the stocks of purchases index was at 53.7, up from 52.8.

That marked the second-highest level of pre-production inventories in the near 11-year history of the survey as higher sales, freight delays and material shortages encouraged firms to raise the level of stocks they hold as a buffer.

Restrictions related to the coronavirus pandemic have contributed to bottlenecks globally.

The factory sector's main concern "has been price and supply chain pressures which have often stemmed from material shortages," Patel said. "With costs intensifying over the course of the month, prices look set to remain elevated for some time."

The input prices index rose to a series high of 77.2 from 72.0 in July, while the measure of output prices was also elevated as firms passed on higher material and shipping prices to their clients.

Still, firms grew more upbeat about prospects for growth. The future output index climbed to 66.7 from 63.1 in July.

(Reporting by Fergal Smith; Editing by Chizu Nomiyama)