Canada’s factory sector struggles deepened, with staffing ripples felt nationwide
Manufacturing PMI July 2025
Canada’s manufacturing sector continues to contract, ushering in renewed pressure on employment and reshaping labour-market dynamics across the nation. According to the most recent S&P Global Canada Manufacturing PMI for July, the headline index rose modestly to 46.1, up from 45.6 in June, but remains firmly below the 50.0 threshold that separates expansion from decline.
Output and Orders Still in Reverse
Manufacturing output, new orders, and buying activity remained deeply entrenched in negative territory. While shipments and demand stabilized somewhat, the persistent contraction was driven chiefly by softening trade with the United States, a lifeline for Canadian goods producers. Export orders edged up to 41.9 from 40.2, yet the level remains perilously low. Domestic new orders also remain sub‑50 at 44.2, offering little optimism for near‑term factory revival.
Inventory Cuts & Job Losses
To weather the storm of uncertainty, especially looming tariff hikes, firms have slashed inventory levels and pared down staffing. The stocks of purchases index fell to 44.1, its lowest since May 2020. Meanwhile, the employment index stood at 46.2, signaling continued payroll contractions across factories.
A senior economist at S&P Global described the operating mood as forcing businesses to “run operations as lean as possible” due to unpredictable cross‑border trade conditions, inevitably dragging down both hiring and purchasing activity.
Inflation Eases, but at a Cost
One glimmer in the data: input-cost inflation cooled significantly. The input price index dropped to 57.0, its lowest reading since November, down from 61.4 in June. While this relieves pressure on margins, it reflects deteriorating input demand, another sign of weakening industrial momentum. All of this means rippling effects in the labour market;
Sectoral layoffs: Sustained contraction in manufacturing has translated into job losses on the factory floor. Employment index sub‑50 readings suggest firms are trimming staff to align capacity with weak demand.
Fewer rehiring and hiring freezes: Firms remain cautious about rehiring, even in ancillary trades, maintenance, logistics, supply. Reduced orders and thinning output dampen the need for contract or temporary help.
Wider regional and wage impact: Manufacturing-heavy provinces, Ontario, Quebec, Alberta, are likely facing slower wage growth or outright job declines, tipping pressure onto service sectors that absorb displaced workers.
Downstream knock‑on effects: As factories slow, related employment in transportation, warehousing, and procurement also sees fallout. This may tighten job prospects even outside manufacturing hubs.
Looking Ahead: Waiting for a Trade Deal
With negotiations over a trade agreement looming and tariffs threatening to rise to 35%, Canadian manufacturers are caught in a wait-and-see. Many are holding back spending and staffing decisions until clarity arrives.
Canada’s manufacturing sector remains mired in contraction, marking six consecutive months of decline as of July. The modest PMI uptick hasn’t translated into jobs growth, in fact, firms continue cutting staff and drawing down on inventories. While cooler input prices offer some relief, they reflect weakening demand rather than stability. The broader labour market may find offsetting strength in services, but for factory workers and regional economies rooted in manufacturing, the recovery remains elusive.