Canada’s factories ran out of steam in October, with manufacturing activity contracting for the first time in 2026 as tariffs, geopolitical uncertainty and supply disruption weighed on the sector.
The S&P Global Canada Manufacturing Purchasing Managers’ Index fell to 49.6 in October from 51.5 in September, dropping below the 50 mark that separates growth from contraction for the first time since December. The survey pointed to simultaneous falls in both output and new orders, ending an uninterrupted run of growth through the year so far.
S&P Global Market Intelligence economics director Paul Smith said the sector had “run out of steam in October” against a backdrop of tariffs and supply-side disruption, with firms reporting declines in both output and orders.
The detail of the survey showed how broad the deterioration was. The output index fell to 48.4 from 50.8 in September, while new orders dropped to 46.5 from 49.3, their lowest reading since September 2025. Average lead times for inputs lengthened by the most since August 2022, as tariffs and global conflicts contributed to shortages and disruption.
Price pressures intensified at the same time. Measures of input costs and output prices rose to their highest levels in more than four years, at 71.7 and 62.3 respectively, adding to the squeeze on manufacturers already facing weaker demand.
The downturn comes after a sharp widening of the trade rift between Canada and the United States in August, when Washington imposed 50% tariffs on a wide range of Canadian imports and Ottawa responded with retaliatory duties. The dispute has left exporters facing higher costs and uncertain access to their largest market.
It also complicates the task facing the Bank of Canada, which raised its benchmark interest rate by 25 basis points to 2.50% last Wednesday and said further increases might be needed to stop soaring energy costs from feeding broader inflation. Manufacturers are now contending with both rising borrowing costs and rising input prices.
The survey will add to scrutiny of the trade talks between Ottawa and Washington. US President Donald Trump said on Sunday that his administration had the “concept” of a new trade deal with Canada, while Prime Minister Mark Carney described recent discussions as constructive, but no agreement has been announced and the tariff regime remains in place.
For now, the October figures mark a turning point for a sector that had grown steadily all year. Whether the contraction proves to be a brief interruption or the start of a longer downturn will depend in large part on whether trade tensions ease and on how far cost pressures continue to build.
Sources: Reuters, “Canadian factory PMI shows sector contracting for first time in 2026” (https://www.reuters.com/world/americas/canadian-factory-pmi-shows-sector-contracting-first-time-2026-2026-11-02/); S&P Global Market Intelligence, Canada Manufacturing PMI, October 2026.
