In June, Canada’s service economy faced contraction, mostly due to uncertainties stemming from US trade policies. This led to a significant drop in international demand and left the outlook dull due to difficulties in predicting business trends.

Despite the uncertainty, companies increased staffing levels, primarily hiring part-time workers to manage labour costs. Operating costs saw their biggest rise since October 2022, resulting in accelerated increases in selling prices, even in the challenging business climate.

Decline In Canada’s Service Sector

The initial portion of the report highlights a decline in Canada’s service sector activity during June, primarily driven by external trade-related pressures. In particular, ambiguous or shifting US trade measures appeared to have hampered inbound interest from international clients, creating a downward drag on overall growth. This cooling in demand made future corporate planning more difficult, adding a layer of hesitancy across supply chains and consumer-facing segments.

Interestingly, rather than cutting back, many firms still opted to take on more staff, though these additions were often in part-time capacities. One could interpret this as a cautious compromise—expanding capacity without fully committing to higher longer-term employee costs. It is an approach that offers more flexibility, especially in an environment where forward demand signals remain inconsistent. Meanwhile, input costs surged, reaching levels not seen since late 2022. The effects of these cost pressures were not absorbed internally for long, with businesses marking up their own prices at a faster pace. For derivative traders, this matters—not only because it feeds into inflation expectations, but also because it narrows the margin for central bank error.

What this tells us: global policy uncertainty—especially from major trading partners—continues to feed directly into services activity, primarily via external demand and secondary cost channels. This slower order pipeline might encourage policymakers to reconsider the timing or degree of monetary easing. However, the upward move in prices complicates that decision. From our standpoint, pricing power still resides with producers, but it is being exercised cautiously.

Tracking Cost Indexes And Labour Indicators

Traders should keep their sights on cost indexes in the short term. They provide early clues about margin pressures and the probability of pass-through dynamics lingering into the next quarter. Labour indicators deserve equal attention—not raw headcounts, but the composition of those hires. If the recent tilt toward temporary jobs persists, we may treat it less as job market resilience and more as an interim buffer. That context changes the reading of wage data, and eventually, rate expectations.

Finally, when tracking positions, keep in mind that inflation drivers—even those originating beyond domestic borders—can play directly into forward-looking indexes. This creates room for spreads to widen at unexpected moments, particularly if yield curves fall out of sync with pricing sentiment. So it’s worth rechecking exposure to the short end, especially if pricing guidance shifts faster than employment revisions.

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