Canada’s services PMI edges up, but sector remains in contraction

Canada’s services economy shrank for a second consecutive month in July, even as headline activity improved slightly. S&P Global’s Canada Services Purchasing Managers’ Index (PMI) rose to 49.1 from 47.1 in June, remaining below the 50 mark that separates expansion from contraction and signaling continued weakness in the sector.

Survey responses pointed to subdued demand and cautious sentiment amid a challenging business environment. Tariffs and geopolitical tensions continued to weigh on near-term activity and the year-ahead outlook. In July, the United States imposed new tariffs on nearly $20 billion of Canadian goods, adding to the pressure on cross-border trade and corporate planning.

New business remained soft, with the New Business Index staying below 50 for a third straight month. Export demand deteriorated at a faster pace, and overall business confidence fell to its lowest level since June 2025, reflecting growing uncertainty about the trajectory of domestic and global growth.

Price pressures intensified. The Input Prices Index climbed to 64.0 in July from 61.2 in June, indicating steeper cost increases for services firms. Respondents linked higher costs to tariffs and elevated energy and fuel prices, with ongoing Middle East tensions cited as a contributing factor. Companies also raised selling prices at a slightly faster rate, though the pass-through appeared limited by fragile demand conditions.

Broadly across the private sector, the S&P Global Canada Composite PMI improved to 49.7 in July from 47.9 in June. The composite reading was held back by the services downturn, even as manufacturing provided a brighter counterweight. Earlier data showed the Manufacturing PMI edged up to 53.5 from 53.0, marking the fastest rate of factory expansion in more than four years.

• Services Business Activity Index: 49.1 (June: 47.1)
• New Business Index: below 50 for a third consecutive month
• Input Prices Index: 64.0 (June: 61.2)
• Composite PMI: 49.7 (June: 47.9)
• Manufacturing PMI: 53.5 (June: 53.0)

Taken together, July’s figures suggest Canada’s economy remains in a delicate balance: manufacturing is expanding, but services—the larger portion of private-sector output—continues to contract. Risks to the outlook include the persistence of tariff-related cost pressures, elevated energy prices, and weak external demand. Key indicators to watch in the coming months will be new orders, hiring intentions, and the pace of selling price increases as firms navigate tight margins and cautious customers.