Canadian manufacturers indicated further deterioration in overall business conditions during September, with output, new business and employment levels all falling compared with the previous month, according to Royal Bank of Canada’s (RBC) Canadian manufacturing purchasing managers’ index (PMI) for September.

Specifically, the index fell to 48.6 in September from 49.4 in August, with the seasonally adjusted RBC PMI registering below the neutral 50.0 threshold for the second month in a row. Although the index only pointed to a moderate downturn in overall business conditions, the latest reading was the lowest recorded in the survey’s five-year history.

According to the RBC PMI, weaker demand conditions resulted in lower input buying and greater efforts to streamline inventories, while backlogs of work were reduced at the fastest pace since April.

The survey also pointed to stagnating export sales despite support from exchange-rate depreciation against the U.S. dollar. At the same time, input prices increased at a robust pace amid widespread reports of rising costs for inputs purchased from abroad, but factory gate charges picked up only slightly over the month.

“Overall conditions in the Canadian manufacturing sector continued to deteriorate in September due to underlying economic conditions, including renewed downward pressure on the price of oil,” says Craig Wright, senior vice president and chief economist with RBC, in a statement.

“Weakness was primarily concentrated in Alberta and British Columbia, with the rest of Canada’s PMI levels registering above neutral and remaining in expansion territory,” he adds.

“Despite persisting challenges in the oil and gas sector, we expect the strengthening U.S. economy to boost Canadian exports and business conditions over the balance of the year,” Wright says.

The monthly RBC PMI — conducted in association with Markit, a global financial information services company, and the Supply Chain Management Association (SCMA) — offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.