Services companies see further contraction, hiring pursued on select industries
June 2025 - Services PMI
TORONTO – July 6, 2025 — Canada’s services sector is slipping deeper into contraction territory, with the latest Services PMI dropping to 44.3 in June, down from 45.6 in May. This marks the seventh straight month of decline, reinforcing fears that the economic softening is broadening and increasingly weighing on employment decisions.
Businesses across the services economy are reporting weaker demand, cautious spending, and growing concern over unresolved trade tensions—particularly with the US. The contraction signals that employers are battening down the hatches, reining in costs, and slowing hiring to a near standstill.
“We’re seeing subdued activity across consumer-facing services, real estate, and even professional support sectors. Many employers are taking a wait-and-see approach, and that affects the entire hiring chain,” said one staffing executive in Toronto.
Rising Costs, Declining Confidence
Adding fuel to the fire, firms are facing rising input costs—the Input Prices Index rose to 62.7, its highest in over a year. While some of these pressures are being passed on to customers, the ability to do so is uneven across industries. The Prices Charged Index climbed to 55.1, suggesting businesses are walking a tightrope between profitability and affordability.
Even more concerning for the labour market, the Future Activity Index dropped to 54.9, its lowest point since March. While still above the neutral 50 mark, it signals fading optimism and further delays in hiring decisions.
The Employment Effect: A Continued Shift Toward Flexibility
The immediate impact is clear: permanent hires have been slowing down and will keep slowing down, while contract and part-time roles are taking centre stage, although subdued demand will not allow for a large creation of temporary jobs either. Companies, uncertain about the next 6–12 months, are opting for flexibility over commitment.
“We’re seeing increased interest in contract staffing across logistics, IT support, and back-office services. But the full-time job orders? Those are moving much slower than usual,” noted a Vancouver-based recruitment manager.
Firms in sectors like hospitality, personal services, and travel are cutting back the most, while others—especially healthcare, logistics, and digital services—are still hiring selectively.
In the short term (next 1–3 months), expect continued caution. Until clarity emerges around US trade policy negotiations (with a key deadline approaching July 21), many firms will remain in risk management mode. Staffing firms should prepare for demand focused on contingent labour, flexible staffing, and cost-efficient recruitment solutions.
Looking to the medium term (3–9 months), optimism could return if trade tensions ease and interest rates hold steady. A successful resolution could spark pent-up hiring—especially in tech, healthcare, and corporate services—making now the time for recruitment companies to stay close to their clients and anticipate hiring rebounds.