Factory activity accelerates in July, but global demand concerns remain
Canada’s manufacturing sector expanded in July at its fastest pace in more than four years, supported by stronger domestic activity, higher production and increased new orders.
However, weaker international demand and ongoing uncertainty around tariffs and geopolitical risks are raising concerns about whether the current pace of growth can continue.
The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) increased to 53.5 in July from 53.0 in June, marking the seventh consecutive month of expansion and the strongest reading since June 2022.
A PMI reading above 50 indicates that manufacturing activity is growing, while a reading below 50 signals contraction.
Domestic demand drives production growth
Paul Smith, economics director at S&P Global Market Intelligence, said July’s PMI data showed stronger growth as companies benefited from improved domestic demand.
“PMI data for July painted a positive picture of current growth, with output and new orders both rising at faster rates on the back of firmer domestic demand,” Smith said.
Manufacturers responded to higher workloads by increasing hiring, with companies adding workers to expand capacity and support production levels.
Production and new orders continue to rise
The manufacturing output index increased to 52.6 in July from 52.1 in June, while the new orders index rose to 53.5 from 52.2.
Despite the positive momentum, S&P Global warned that continued growth could be difficult to maintain due to weak international demand.
“Whether growth can be sustained at its current clip is doubtful. International demand remains weak, driven lower by tariffs and a highly uncertain geopolitical environment,” Smith said.
Tariffs and energy costs increase inflation pressures
Canadian manufacturers faced rising costs during the month as tariffs and higher energy prices linked to tensions in the Middle East affected input expenses.
The input prices index climbed to 68.3, its highest level since July 2022, reflecting increased cost pressures across the sector.
Concerns over inflation and geopolitical uncertainty also weighed on business confidence, limiting expectations for future growth.
Future outlook becomes more cautious
The future output index declined slightly to 55.4 in July from 55.7 in June, reaching its lowest level since March.
While manufacturers remain optimistic about future production, the decline suggests companies are becoming more cautious about the economic environment and external risks.
