Services face 9th straight month of decline; and yet hiring holds steady
Services PMI - August 2025
In August 2025, Canada’s services industry continued its stretch of contraction, marking the ninth consecutive month of decline. The S&P Global Canada Services PMI dropped to 48.6, down from 49.3 in July, a signal that softness is holding firm, not easing yet.
At the heart of the slowdown lies persistent uncertainty over U.S. tariffs. These escalating trade tensions have weighed heavily on export demand and dampened both new business and overall activity. The new business index declined to 46.9, and the new export business index slid sharply to 38.6, its lowest since April, as international clients pull back.
Despite these headwinds, one unexpected bright spot surfaced: employment.
The employment index remained above the 50 threshold for the fourth straight month, signaling modest growth in jobs, as confirmed by other reports and the positive outlook shown by the CSJ Hiring Index. That resilience stands out in a contracting environment.
Adding nuance, cost inflation eased, hitting a seven-month low, even as companies acknowledged higher supplier charges tied to tariff burdens.
On a broader scale, the Composite PMI Output Index, which blends services and manufacturing, slid slightly to 48.4, underscoring the breadth of the economic soft patch.
Looking Back: A Tentative Turn in July
July had offered a sliver of hope. The services PMI ticked up to 49.3, an eight-month high though still below the neutral 50 mark. New business rose to 48.7, and future activity expectations surged to 60.9, propelled in part by optimism over events like the FIFA World Cup and expectations of stabilizing conditions. Hiring also picked up, hinting at early signs of recovery.
Yet by August, the optimism had faded. Activity fell again, and trade fears, once again, blurred the outlook, even as firms kept staffing levels stable.
What This Tells Us About Staffing, and the Road Ahead
Employment resilience amid contraction: Even as activity and new orders sagged, firms continued hiring, perhaps to retain critical capacity or preempt future rebound. That said, the gains appear marginal, hinting at cautious optimism rather than bold expansion.
Tariff anxiety remains the central obstacle: Firms report hesitancy from international clients, elevated supplier costs, and fragile business confidence. This uncertainty continues to weigh on forward-looking plans and is the dominant theme shaping behavior.
Easing costs offer a silver lining: The modest retreat in cost inflation, despite tariff-related pressures, suggests firms may be finding ways to absorb or manage price pressures more effectively.
Outlook remains deeply conditional: The downturn is entrenched, but with glimmers of optimism in hiring and forward expectations; should trade tensions calm and global demand stir, the services sector could quickly pivot toward recovery.
Putting it in Perspective
Previously, we highlighted how June’s PMI reading plunged to 44.3, intensified by sharp cost pressures and uncertainty, yet even then, firms managed to hire, though often on a part-time basis, as a low-cost hedge. In July, optimism grew briefly, but August reminded us how fragile that sentiment remains.
In sum, Canada’s services sector finds itself in a holding pattern: hiring continues, but activity and new business falter under the weight of tariff-driven uncertainty. The sector’s near-term fate may hinge less on domestic fundamentals and more on whether clarity emerges from cross-border trade developments.