Canadian manufacturing activity slipped into contraction in October. This marked the sector’s first contraction of 2026. After struggling over 2025 in response to US tariffs, manufacturing activity has been stronger this year. However, new US tariffs imposed in August are having an impact on manufacturing activity in tariff-impacted sectors. Meanwhile, US factories continued to expand in October. Trade tensions between the two countries remain a key factor.

• The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to 49.6 in October from 51.5 in September. A reading below 50 signals contraction. This was the first contraction since December 2025.
• Orders and jobs weakened over the month. Production fell for the first time since March, and new orders dropped by the most in over a year. Export orders declined for a fifth straight month, and manufacturers cut employment. Firms cited tariffs and disrupted trade with the US.
• Input costs rose at the fastest pace since June 2022, driven by tariffs and higher steel, fuel and freight costs. Manufacturers raised selling prices by the most in over four years, adding to the inflationary pressures the Bank of Canada addressed with a rate increase last week.
• The S&P Global US Manufacturing PMI eased to 54.9 from 55.9, a 15th straight month of expansion. The sector benefited from strong demand, particularly for AI-related equipment.
• Trade talks have progressed over the past week. Canadian Prime Minister Mark Carney said on Sunday he had a constructive conversation with US President Donald Trump, and negotiators will work in the coming weeks toward a deal. Talks have focused on tariff relief for Canadian steel and autos, but no details have been announced.

Canadian manufacturers are being squeezed by weaker demand and higher costs. A trade deal that eases tariffs could help Canadian exporters, but the outcome of a potential trade deal remains uncertain.

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