Canada’s S&P Global May manufacturing PMI registered at 46.1, an increase from April’s 45.3, yet it remains below the neutral threshold of 50, showing contraction for four months. The data reveals a steep decline in output and new orders, with international demand, particularly for exports, noticeably weaker than domestic demand.

Customer hesitation to place new orders is largely due to tariff uncertainties. Inventories, both input and finished goods, were reduced further to control costs, with some businesses leaning on existing stocks due to supplier delays. Additionally, supply chain disruptions are evident, with vendor delivery times worsening, attributed to port congestion and customs delays.

Inflationary Pressures Intensify

Inflationary pressures intensified, nearing March peaks, largely due to tariffs impacting input costs. Although output prices were raised, the rate of increase was at a three-month low. Employment weakened, showing job losses for the fourth consecutive month, the most pronounced since June 2020. While order backlogs diminished, high spare capacity persisted.

Purchasing activity shrank for the fifth consecutive month, indicating reduced production requirements. Business sentiment remained low as hopes for macroeconomic stability were tempered by trade policy uncertainties, impacting U.S. trade flows. The current environment presents significant challenges for Canadian manufacturers amid rising costs and an unpredictable trade landscape.

The recent data from Canada’s May manufacturing PMI, reporting a score of 46.1, bears watching even though it nudged up slightly from April. Any figure below 50 points to contraction, which has now persisted for four consecutive months. In more straightforward terms, that means factories are producing and receiving fewer orders than they were, and this downturn is not just a one-off blip. Export demand continues to falter more than domestic demand, meaning overseas clients are less eager or less able to buy Canadian products right now, potentially due to friction in international trade policy.

Business Sentiment and Employment Trends

We can see that businesses are clearly bracing for uncertainty. Many have chosen to run leaner, trimming inventories rather than risk overproduction. Some have slowed purchases not due to confidence in supply, but because of delivery issues from vendors, especially linked to congested ports and delays at customs. These delivery bottlenecks are not just annoying—they are actively disrupting scheduling and earnings planning.

Inflation doesn’t help. Input prices have gone up again, close to levels last recorded in March, much of which is tied directly to tariffs. Although manufacturers are managing to pass some of the higher costs on to customers by raising output prices, their ability to do so is waning. The fact that these price rises have softened over the past three months implies little room left to push customers further without demand falling even more.

On the employment side, the picture is no better. The sector just marked its fourth straight month of job losses, with the pace of cuts quickening. It’s the steepest drop seen since mid-2020, when the pandemic gripped the economy. That tells us staffing needs are now far below previous expectations. Not because operations are more efficient, but simply because workloads have shrunk.

Spare capacity remains high. There are fewer backlogged orders, meaning factories aren’t just catching up—they’re running idle more often. Lower purchasing activity, now reduced for a fifth straight month, confirms that production itself is not expected to ramp up any time soon. These aren’t early signs of a rebound, but rather hints of ongoing caution.

Mood remains subdued. Confidence lacks vigour as businesses weigh internal expectations against what’s happening globally—especially uncertainty tied to the U.S. trade environment. Sentiment is still being dampened by broader macroeconomic concerns, especially where tariff decisions and supply alignment are unstable.

So, demand trails off, costs climb, and policy signals distort planning. The challenge for those of us navigating futures and options tied to such sectors isn’t simply tracking output, it’s responding to these sharp macro adjustments as they emerge in real time.

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