Report: Canada’s manufacturing economy hits lowest point since July 2024

Canada’s manufacturing economy declined in performance during February 2025. After accounting for seasonal factors, the S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) declined to 47.8 in February. That was down from 51.6 in January and the lowest level since July 2024. It was also the first time that the headline index has fallen below the crucial 50.0 no-change mark that separates growth from contraction for six months.

Output and new orders both declined, largely due to considerable market uncertainty related to tariff concerns. Job losses were also recorded, whilst confidence in the outlook turned pessimistic for only the second time in the survey history. Amid some reports of vendor price uplifts in response to anticipated tariffs, input cost inflation rose to its highest level since April 2023.

Commenting on the latest survey results, Paul Smith, economics director at S&P Global Market Intelligence said, “The considerable uncertainty related to tariffs being applied on all goods passing across the Canada-United States border weighed heavily on the manufacturing economy during February. Output fell noticeably, driven lower by a steeper decline in new orders as product markets, both at home and abroad, were paralyzed by concerns over the applicability and size of tariffs in the coming months. Understandably, manufacturers grew increasingly downbeat about the future, with confidence at its lowest level since a series record low was registered in April 2020. This meant firms also adopted an increasingly cautious approach to purchasing and employment, with cuts made in each case since January.”

Falling volumes of production and new work weighed heavily on February’s PMI. The decline in new work was especially acute, with the contraction the second steepest since the start of 2024 (surpassed only by last July). Panellists widely noted that tariff and trade concerns meant clients were cautious when committing to new orders, preferring instead to adopt a “wait-and-see” approach given the uncertainty around future Canadian and U.S. trade policies. New export orders were hit by similar factors, declining in February to the greatest degree since September 2024.

Worries over tariffs and trade had a similarly negative impact on manufacturers’ confidence during February. Overall, sentiment dropped into pessimistic territory for only the second time in the series’ history (surpassed only by April 2020), with the month-on-month decline in the respective index amongst the greatest in the series’ history. The subdued outlook meant firms were broadly unwilling to replace leavers and, with a lack of overall workloads in February, a decline in staffing levels was recorded for the first time since last August. The rate of contraction was also the steepest in over a year. Capacity remained more than sufficient, however, with backlogs of work declining again and to the greatest extent for six months.

A lack of new work and dwindling production requirements meant firms were keen to utilize existing inventories of inputs in February rather than buy-in new stock. Latest data showed that input inventories fell for a second month running and to the fastest degree in over a year, whilst purchasing activity was cut at the greatest pace since July 2024.

Despite reduced demand, adverse weather conditions meant average lead times for the delivery of inputs lengthened again in February, albeit to a softer degree than at the start of the year. Vendors were also reported to be raising their charges, sometimes in anticipation of tariffs being applied on goods in the months ahead. With unfavourable exchange rate movements reported to have also raised general prices, average input costs rose sharply and to the greatest degree since April 2023. Output charges were increased in response, with inflation remaining solid and little changed since January.

“Adding to the general woes was an acceleration in input price inflation to its highest in nearly two years, with costs rising on the back of a stronger US dollar and, in some cases, vendors raising prices ahead of possible changes to tariffs in the months ahead,” said Smith.