Canada's Manufacturing Sector Contracts for First Time in 2026 Amid Tariffs and Rising Costs
Canada's manufacturing sector contracted in October 2026 as the S&P Global PMI fell to 49.6, driven by tariffs and supply-side disruptions. Input costs and output prices hit multi-year highs, prompting the Bank of Canada to raise its benchmark interest rate to 2.50 per cent.
Canada’s manufacturing sector contracted in October 2026 for the first time this year, with the S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) falling to 49.6 from 51.5 in September. A reading below 50 on the PMI indicates contraction in the sector.
Paul Smith, economics director at S&P Global Market Intelligence, stated that firms reported concurrent drops in both output and new orders due to tariffs and supply-side disruption. The manufacturing output index fell to 48.4 in October from 50.8 in September. The new orders measure dropped to 46.5 in October from 49.3 in September, marking the lowest reading since September 2025.
Trade tensions have weighed heavily on the sector. In August, the United States imposed 50-per-cent tariffs on a wide range of imports from Canada, leading to retaliatory tariffs from Canada. Average lead times for input deliveries lengthened to the greatest degree since August 2022 due to tariffs and global conflicts.
Price pressures intensified alongside the slowdown. Input cost measures rose to 71.7 and output price measures rose to 62.3, the highest levels in more than four years. To combat inflation pressures, the Bank of Canada raised its benchmark interest rate by 25 basis points to 2.50 per cent last Wednesday.