Canada’s manufacturing sector contracts for first time in 2026

Canada’s manufacturing sector contracted in October for the first time this year as tariffs and geopolitical uncertainty weighed on activity, and after inflation pressures intensified.

The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) fell to 49.6 last month from 51.5 in September, marking the first move below the 50 threshold since December. A reading below 50 indicates contraction in the sector.

“Having enjoyed an uninterrupted run of solid growth throughout 2026 so far, Canada’s manufacturing sector ran out of steam in October,” Paul Smith, economics director at S&P Global Market Intelligence, said in a statement. “Against a backdrop of tariffs and ongoing supply-side disruption, firms reported concurrent drops in both output and new orders over the month.”

A trade rift between the United States and Canada widened in August as the U.S. imposed 50-per-cent tariffs on a wide range of imports from Canada and Canada responded with retaliatory tariffs.

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The output index fell to 48.4 from 50.8 in September, while the new orders measure was at 46.5, down from 49.3 and the lowest reading since September, 2025.

Average lead times for the delivery of inputs lengthened to the greatest degree since August, 2022, as tariffs and global conflicts contributed to product shortages and supply-chain disruption during the month.

“To add to the broad deterioration in operating conditions, there was also an intensification of price pressures,” Smith said.

Measures of input costs and output prices rose to the highest levels in more than four years, hitting 71.7 and 62.3 respectively.

Last Wednesday, the Bank of Canada raised its benchmark interest rate by 25 basis points to 2.50 per cent and said further increases might be needed to prevent soaring energy costs from fueling broader inflation.