Canada Manufacturing Growth Slows Amid Trade Tensions

The Canadian manufacturing sector's growth slowed down in September, according to the S&P Global manufacturing PMI. The index fell to 51.5, a 1.5-point drop from the previous month's 53.0. This marks the lowest reading since March and the sixth consecutive month above 50.

New orders slipped into contraction for the first time since March, while new export orders declined for a fourth straight month. The decline in demand was largely responsible for the PMI's drop, with tariffs and US trade friction being cited as main culprits. Panellists noted client hesitancy and a fourth consecutive fall in export orders.

The Bank of Canada is likely to be concerned by the input cost inflation, which rose at its fastest pace in over four years due to the Iran war and hit energy prices. Delivery times are stretching the most since August 2022, while supplier delivery times are also at their longest since that time. Manufacturers are passing on some of these costs but face weak demand, limiting their pricing power.

The PMI calculation inverted longer delivery times, which means supply disruptions actually flattered the index. However, stripping out this effect shows a closer-to-flat underlying picture. Hiring is holding up, with firms filling skilled positions to service long-term contracts. But falling backlogs alongside falling orders mean that support won't last if demand doesn't improve.