New data from S&P Global released this week show Canada’s private sector is pulling out of a rough patch, but the recovery remains uneven. The country’s manufacturing sector continues to expand at a solid clip, while the much larger services sector is still shrinking, though at a less severe pace than the month prior. Tariffs and geopolitical tensions continue to weigh on business conditions, keeping confidence fragile heading into the second half of the year.

• The S&P Global Canada Composite Purchasing Managers’ Index (PMI) rose to 49.7 in July from 47.9 in June, a sign that Canada’s private sector is contracting at a slower pace than the month before. (A score below 50 signals contraction.) Manufacturing output was the bright spot, but ongoing weakness in the services sector kept the overall reading in negative territory.
• Services, Canada’s largest economic sector, contracted for a second straight month, with the S&P Global Canada Services PMI rising to 49.1 in July from 47.1 in June. Although the reading improved, it remained below the 50 threshold. New business declined for a third consecutive month, and business confidence fell to its lowest point of 2026.
• Employment across the private sector continued to grow, with the employment index rising to 51.9 in July from 50.8 in June, its strongest reading since May 2023.
• Input costs climbed at an accelerated pace in July, fuelled by tariffs, higher energy and fuel costs tied to the Middle East conflict, and rising labour expenses.
• Manufacturing was positive, with the S&P Global Canada Manufacturing PMI edging up to 53.5 in July from 53.0 in June, its fastest pace of expansion in more than four years.

The July PMI data suggest Canada’s economy is stabilizing rather than deteriorating, but the path forward remains unclear. Accounting for the largest share of Canada’s economic output, the services sector contraction will be something the Bank of Canada watches closely as it determines its next interest rate decision. 

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