The subsequent monthly report from the Canadian S&P Global Manufacturing Purchasing Managers’ Index (PMI) gives even more ominous news. Unfortunately, Canada’s manufacturing sector has finished the year on a very soft note. With an October PMI of just 42.7, the newest data continue to indicate a contraction in the important supply chain sector. That’s the eleventh month in a row of shrinking production and general business activity. This stark decline is due to a combination of reduced production and order volume. Persistent tariff unpredictability has played a role in this narrative to undermine business confidence.
The report highlights that Canadian manufacturers are grappling with rising input costs, driven by ongoing supply chain delays and existing tariffs. These inflationary pressures have forced firms to adopt many ways of cutting costs, including cutting labor, expanding inventories, and cutting purchases. Consequently, the future manufacturing environment is starting to look monumentally discouraging as the country moves into early 2026.
Declining Output and Orders
The Canadian S&P Global Manufacturing PMI showed one of the largest decreases in output and new orders. The numbers don’t lie, we are seeing a dramatic decrease in order intake. This is the worst spread since the Great Recession. This sudden drop reflects an unprecedented depth of non-processing sector demand. As things stand, manufacturers are facing an almost perfect storm of challenges. Instead, they’re overwhelmed trying to walk through a minefield of having dangerously fluctuating order and thus production levels.
What’s more, the report highlights that the uncertainty caused by tariffs is still hurting the confidence of Canadian businesses. Uncertainty in trade policy direction has led to a high-strung climate. This supply chain disruption raises inflationary pressures on all input costs. This cycle of uncertainty only makes it harder to do what’s needed to stabilize manufacturing activities in every corner of the country.
Labor and Inventory Cuts
Faced with a steep drop in orders and increased cost of materials, many of these firms are cutting deep to conserve cash. The PMI data indicates that companies are cutting back on labor and reducing their inventory levels in an attempt to cope with the prevailing market conditions. These actions are the latest signs of the growing payroll dangers in the manufacturing sector. Firms are scrambling to right-size their workforces to match reduced production needs.
To some extent, the drop in orders is a product of manufacturers’ approaches to minimize purchases’ impacts on their balance sheets while weathering this downturn. Businesses are shrinking their footprints. This increasing hesitancy amongst companies could end up having long-term impacts on employment numbers in the sector.
Future Outlook and Tariff Concerns
The recent Canadian S&P Global Manufacturing PMI has all the hallmarks of a corrective move with more to come. That’s tremendously encouraging, particularly given the challenges we’re facing right now. Those numbers indicate that even though national activity continues to drop off overall, there is room for optimism as the environment rapidly changes. Manufacturers undoubtedly are still feeling the pinch of just how much tariffs have been a driving force ruining their business.
Tariff-driven cost pressures on transportation are dramatically squeezing demand. It remains a daunting task for businesses to discover the best solutions to meet these challenges head on. The PMI report highlights the importance of strategic planning and flexibility as manufacturers plan for the future. The continued uncertainty on tariffs continues to be a top issue that could shape the industry’s future direction.