Canada’s manufacturing sector slipped into contraction in October for the first time in 2026, ending a nine‑month run of expansion. The S&P Global’s purchasing managers’ index (PMI) fell from 51.5 points in September to 49.6 points, dropping below the 50‑point threshold and marking its weakest reading since December 2025. The main triggers were uncertainty over US tariffs, disruptions to global logistics chains, and a related surge in input costs.
Incoming orders recorded their steepest decline in more than a year. Export contracts fell for a fifth consecutive month, leading to the first month‑on‑month drop in physical production since March. Faced with supply‑chain bottlenecks and delivery delays exacerbated by the Middle East conflict, firms experienced material shortages and drew on inventories for a second month running. Manufacturing cost inflation hit its highest level since summer 2022, driven by higher prices for imported steel as a result of tariffs and rising fuel and freight costs. To protect margins, factories pushed through selling‑price increases at the fastest pace in over four years.
The cooling of order flows and shrinking production pipelines forced managers to optimize workforces. Canadian firms recorded a net reduction in jobs for the first time since March, declining to replace departing staff. Paul Smith, head of economics at S&P Global Market Intelligence, said the combination of tariff pressure and logistics disruptions has produced a persistent pattern of output compression while costs remain elevated. He added that this dynamic has driven business confidence among manufacturers to historic lows for the medium term.
