Services sector slumps as firms retract amidst uncertainty
November data from the S&P Global Canada Services PMI make for a sobering read. After a brief return to growth in October, the services sector plunged well into contraction territory, with the headline Business Activity Index collapsing to 44.3. That reading marks the weakest since mid-year and suggests widespread retrenchment across consumer-facing and business-services firms.
The drop was broad-based. New business volumes fell sharply again as clients pulled back or delayed engagements amid persistent economic uncertainty and tighter household budgets. Firms reported substantial reductions in demand, both domestically and from overseas clients, weakening overall sales and backlog levels.
Employment in the services sector also took a hit. According to the sub-index, November saw the largest drop in staffing levels since mid-2020, indicating that companies are shedding workers, freezing hiring, or avoiding replacing leavers. That adds another layer of concern: not only are fewer contracts coming through, but headcount is being pared back.
On the price side some inflation pressures remain. Input costs driven by wages, fuel, and other expenses remain elevated, although they eased slightly compared with recent months. At the same time firms struggled to pass costs onto clients, with selling-price inflation dropping to a multi-month low. Competitive pressures and weak demand appear to be constraining pricing power.
For labour market watchers and staffing firms this reading raises a few red flags for the coming winter; demand for service sector staffing especially in consumer services, hospitality, business services, and related fields is likely to remain weak. Temporary or contract placements may continue to outperform permanent hiring simply because companies are reluctant to add full-time staff until they see stable orders. However even temporary work could suffer if service businesses reduce operating hours or close weak units.
That said, all is not lost. The sharp drop may mark a bottom in activity; firms with the financial flexibility to ride out the downturn might re-hire once cost pressures ease or if demand stabilizes. A reset in input costs or a modest rebound in consumer spending, perhaps driven by year-end needs or policy developments, could lift new work. For now though, the November reading underscores that the services sector, which drives a large share of Canada’s jobs, is assuming much of the economic strain.
As the country heads into winter, staffing and labour market professionals would do well to brace for softness in services hiring, while also watching carefully for early signs of stabilization, especially among firms less exposed to consumer demand swings.