Canada Services Sector Contracts for Fourth Month Amid Tariff and Iran Uncertainty

Canada’s services sector continued to shrink in September, marking the fourth consecutive month of decline. S&P Global’s services PMI rose slightly to 48.3 from 46.8, but it remained below the 50 threshold that separates growth from contraction. The persistent decline reflects cautious business sentiment due to tariff uncertainty and the ongoing conflict in Iran, which has elevated costs and dampened activity.

According to S&P Global Market Intelligence economist Paul Smith, softer output and fewer new orders contributed to the downturn. The input price index increased to 62.2 from 61.7, indicating that firms are facing higher operating expenses. Despite the challenging environment, business confidence improved, with the future activity index jumping to 61.4 from 56.4, suggesting that some firms anticipate easing uncertainty.

For financial markets, the conflicting signals from the PMI and input price index create uncertainty. A sub-50 PMI typically points to weaker demand and slower revenue growth, which might push expectations for interest-rate cuts forward. However, the high input price reading suggests that service-sector inflation pressures remain stubborn, raising concerns about margin squeezes if firms cannot pass on costs. This mixed outlook could keep Canadian short-term yields and the Canadian dollar volatile until economic conditions stabilize or cost pressures ease.