Manufacturing sector shows modest January growth despite tariff uncertainty: S&P Global PMI

Operating conditions in Canada’s manufacturing sector showed a modest improvement in January, according to the latest S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI). While the growth rate for both production and new orders slowed, uncertainty surrounding potential tariffs on Canadian exports to the United States contributed to a decline in business confidence, which hit its lowest point since July 2024.

The seasonally adjusted PMI for January was 51.6, indicating a modest expansion in manufacturing activity. However, this marked a slight decrease from December’s PMI reading of 52.2. The index has remained above the neutral 50.0 mark for five consecutive months, reflecting continued but moderate growth.

Production levels rose again in January, continuing a trend that began in October 2024. The increase in production was linked to higher sales, with new orders also rising, bolstered by a notable uptick in new export sales for the first time since August 2023. However, some manufacturers reported that the potential for US tariffs on Canadian goods had prompted customers to bring forward orders. Despite this, uncertainty surrounding the scope and impact of the tariffs led to hesitation within the marketplace, resulting in only a modest increase in new work. January’s new order growth was the weakest in three months.

“January’s survey highlighted the complex impact that possible U.S. tariffs are presently having on the Canadian manufacturing economy,” said Paul Smith, Economics Director at S&P Global Market Intelligence. “Firms noted that clients in some instances were bringing forward their orders to get ahead of these potential tariffs, and output amongst manufacturers was being raised in response. Firms even took on additional staff to help service additional workloads, and this helped them to keep on top of their current orders.”

Concerns about tariffs were also reflected in the outlook for the manufacturing sector. Business confidence dropped to its lowest level since last July, as firms expressed caution about the future. While many manufacturers are planning to increase output and launch new products in the year ahead, the uncertainty over trade policies has led to more conservative purchasing decisions. As a result, firms reduced their input buying in January, marking the steepest decline in procurement activity since August 2024.

With production growth outpacing the rise in new orders, manufacturers increased their inventory levels in January. The growth in stockpiles was modest and lower than the significant increase recorded in December. Some firms reported challenges in shipping goods due to ongoing transportation issues and adverse weather conditions.

Employment levels saw a modest increase in January, extending the current period of growth to five months. Manufacturers were able to fill open positions, and some recruitment occurred in response to higher sales and production needs. Consequently, firms managed to keep up with workloads, as evidenced by a continued reduction in backlogs. Backlogs have now been consistently decreasing for two-and-a-half years.

Lastly, input price inflation accelerated in January, reaching a 21-month high. A stronger U.S. dollar contributed to the rising cost of imported goods, according to survey respondents. In turn, output charges increased, with inflation reaching its highest level since August 2024.

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