Canada’s Manufacturing Downturn Extends to Eight Months
Canada’s manufacturing sector continued its contraction through September 2025, marking the eighth consecutive month of decline as economic uncertainty and trade challenges persisted. The S&P Global Canada Manufacturing PMI dropped to 47.7, showing a faster deterioration from August’s 48.3 reading and remaining well below the crucial 50.0 threshold that indicates expansion. This extended downturn represents the longest continuous contraction period since the 2020 pandemic disruptions, though current conditions remain less severe than during that crisis period.
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Production and Orders Show Accelerated Decline
Manufacturing output and new orders both contracted at accelerated rates during September, with export orders showing particularly sharp declines. Companies consistently pointed to tariffs and economic uncertainty as primary factors driving the downturn. The sector’s performance has now underperformed for most of 2025, raising concerns about broader economic impacts given that manufacturing represents approximately 10% of Canada’s GDP and employs over 1.7 million workers.
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Paul Smith, Economics Director at S&P Global Market Intelligence, observed that “output, new orders and exports all continued to fall, with the uncertain trading environment also leading firms to make cuts to purchasing, inventories and employment.” This comprehensive assessment of the manufacturing landscape was detailed in the original analysis that first highlighted these concerning trends.
Trade Relations and Tariffs Weigh Heavily on Sector
Canadian manufacturers reported that tariffs continued to significantly impact export performance, with sales to the United States showing particular weakness. Despite the Canada-United States-Mexico Agreement framework maintaining basic trade flows, additional tariff measures have affected specific sectors. Survey participants consistently identified trade relations with the United States as their dominant concern, noting negative impacts on both export volumes and business confidence.
“Once again tariffs and Canada’s trading relationship with the United States remained a dominant theme amongst survey participants,” Smith emphasized. The PMI report indicated that companies are adopting a cautious “wait-and-see attitude rather than plan for and commit to new projects” due to the uncertain trade environment. This approach has resulted in reduced capital investment and hiring freezes across multiple manufacturing subsectors.
Employment and Inventory Adjustments Reflect Caution
Manufacturing employment declined for the eighth consecutive month in September, though the rate of job losses moderated to the softest pace since February. Companies primarily managed workforce reductions through natural attrition rather than widespread layoffs, choosing not to replace departing employees while making selective adjustments where necessary. Industry analysts suggest this pattern reflects expectations of a prolonged adjustment period rather than anticipating a sudden collapse.
Inventory strategies also shifted significantly, with manufacturers reducing both pre-production and finished goods stocks in response to declining orders and economic uncertainty. This cautious inventory management approach indicates businesses are preparing for continued challenges in the coming months as they navigate the complex trade environment and economic headwinds facing Canada’s manufacturing sector.
