Key Takeaways
- Canada’s services sector contracted sharply in November, with the Business Activity Index falling to 44.3.
- Employment and new business declined at the steepest rates since mid-2020, driven by economic uncertainty.
- Trade tensions with the U.S. and rising costs limited firms’ pricing power amid persistent cost pressures.
The Canadian economy showed signs of cooling as its services Purchasing Managers’ Index (PMI) dropped to 44.3 in November, representing the steepest contraction since June. Data released by S&P Global highlighted notable declines in business activity, employment, and new orders across the services sector. Cost pressures and economic uncertainty linked to U.S.-Canada trade frictions have weighed on growth prospects in this vital sector.
Services Sector Contracts Amid Economic Uncertainty
The headline Business Activity Index within the Canada services PMI sank from 50.5 in October to 44.3 last month, signaling a marked contraction. According to Paul Smith, economics director at S&P Global Market Intelligence, “Latest PMI data provided a sobering overview of Canada’s services economy as 2025 nears its end.” Firms reported significant declines in output and new business volumes, which exacerbated spare capacity in the sector.
The New Business Index declined to 45.0 from 48.8 in October, reflecting subdued demand. Employment contracted sharply to an index reading of 47.1, its weakest since June 2020. Businesses cited clients’ reluctance to commit to new projects amid uncertain economic conditions. These indicators underscore intensifying headwinds for job creation and sector expansion heading into 2026.
Trade Tensions and Rising Costs Compress Margins
Canada’s close economic ties with the United States—its main export partner accounting for about 75% of exports—have left the country vulnerable to ongoing trade tensions. These frictions continue to dampen business confidence and output levels across manufacturing and services.
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Cost pressures remained elevated in November, largely fueled by tariffs and higher wages. The input prices index stood at 60.1, slightly down from October’s 61.0. Despite rising input costs, firms were unable to fully pass on expenses to customers, resulting in the prices charged index dropping to a seven-month low of 50.6.
Mirroring the services slowdown, Canada’s manufacturing sector also contracted more sharply in November. The composite S&P Global Canada PMI Output Index, which combines manufacturing and services data, declined from 50.3 in October to 44.9—the lowest reading since June—highlighting widespread economic pressures.
Economy: Market Outlook
With the services PMI registering its steepest contraction in five months and employment declining significantly, the Canadian economy faces heightened risks entering 2026. Persistent cost inflation, trade-related uncertainties, and cautious business sentiment have contributed to subdued growth across key sectors. Market participants and policymakers will be closely monitoring upcoming PMI releases for signs of stabilization or further deterioration.
Ultimately, November’s data points to a challenging environment for Canada’s economy, driven primarily by the services sector’s downturn. The contraction in business activity and employment signals the need for attentive risk management among investors and stakeholders reliant on continued economic expansion.
