Canada’s manufacturing sector contracted at a quicker rate in September, driven down by lower output and new orders amid an uncertain trade environment, according to statistics released on Wednesday.
The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) fell to 47.7 in September, from 48.3 in August.
The indicator stayed below 50 for the eighth consecutive month, indicating a persistent downturn in factory activity.
Paul Smith, economics director at S&P Global Market Intelligence, stated that the statistics highlighted “the continued underperformance of Canada’s manufacturing economy.”
He highlighted that production, new orders, and exports all continued to fall, while trade uncertainty prompted businesses to reduce purchasing, inventory, and employment.
Output and new orders weaken further
The survey breakdown suggested broad-based weakness across the sector. In September, the output index fell to 46.4 from 47.4 a month earlier, and the measure of new orders decreased to 46.1 from 47.9.
The two readings emphasise a more fundamental pullback in demand conditions confronting Canadian manufacturers.
That hesitancy around global trade weighs on Ottawa as the capital attempts to achieve momentum on negotiations with Washington.
Canada has been negotiating with the US for months over a new trade and security framework that would eliminate any US tariffs on Canadian goods.
But talks hit an impasse, exposing the manufacturers to trade-related headwinds.
Trade outlook depends on USMCA review
Canadian Prime Minister Mark Carney underlined last week that trade negotiations with the United States are still ongoing.
He said that many of the lingering difficulties will be pushed to the future review of the United States-Mexico-Canada Agreement (USMCA).
The protracted uncertainty has harmed company confidence and investment in the industrial sector, as companies examine the ramifications of future trade changes with Canada’s main export market.
Price pressures show signs of easing
The latest survey also showed a halting of price pressures, which was a positive despite demand being weak.
There was a moderation in input cost inflation, with the input price index declining to 57.3 in September, down from 61.6 in August.
The output price index fell to a near-four-year low in October 2024 at 51.2, lower than an earlier peak of 52.0 and confirmed, indicating a moderation in selling price increases.
Smith had said the easing in price pressures will give comfort to policymakers at the Bank of Canada that underlying inflationary pressures are abating.
That trend helps justify the central bank’s decision last month to reduce its key interest rate.
The Bank of Canada cut rates in September
In September, the Bank of Canada reduced its policy rate by 25 basis points to 2.50%, the first rate cut since March.
The central bank has indicated that lowering inflationary pressures, combined with slower economic momentum, may allow for a more flexible policy.
The most recent PMI survey underscores the narrative of a cooling economy, with manufacturers reducing hiring and shutting back operations in response to lower demand.
While slower cost rises may assist in keeping inflation under control, the recurrence of sub-50 PMI readings indicates that industrial sector growth will be difficult to achieve in the near term.
Outlook
The struggling Canadian manufacturing sector is seeing even more fallout from weakening global demand and the stalled trade negotiations with the US.
The sector would not bounce back quickly from these sorts of levels without some kind of reversal in the trade agreement or an improvement in outside demand, as output and new orders remain under continued pressure.
For those setting policy, the easing in price pressures tells a tale of moderation, but insists that the ongoing contraction in the manufacturing sector is nevertheless reminding all to tread lightly here, as it represents the real threat to the broader Canadian Economic Outlook.
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