In June, Canada’s service economy shrank, mainly because of uncertainty surrounding US trade policies. This uncertainty led to a drop in international demand and made it hard to predict business trends. Despite these challenges, many companies hired more staff, focusing on part-time workers to keep labor costs manageable. At the same time, operating costs rose significantly, the largest increase since October 2022. This, in turn, pushed selling prices higher, even in a tough market. The report begins by noting a decline in Canada’s service sector in June, largely due to external trade pressures. Unclear US trade policies discouraged international clients, slowing overall growth. This drop in demand made it harder for businesses to plan for the future, causing caution throughout supply chains and among consumers. Interestingly, instead of cutting jobs, many firms chose to hire more staff, mostly in part-time roles. This can be seen as a careful strategy—growing their workforce while avoiding long-term payroll commitments. This approach offers flexibility in an environment where demand signals are uncertain. Meanwhile, rising input costs reached levels not seen since late 2022. Businesses could not absorb these cost increases for long and began raising their prices more quickly. For traders, this is important as it feeds into inflation expectations and limits the margin of error for central banks. Overall, this situation shows that global policy uncertainty—particularly from major trading partners—affects service activity directly through external demand and costs. A slower pipeline of orders may lead policymakers to rethink when or how much to ease monetary policy. However, rising prices complicate this decision. We believe that producers still have pricing power, but they are being careful with it. Traders should focus on cost indexes in the short term for early signs of margin pressures and potential price increases in the next quarter. It’s also essential to pay attention to labor indicators—not just the total number of hires, but also the types of jobs created. If the trend of temporary jobs continues, it may indicate a temporary fix rather than true strength in the job market. This context can alter how we interpret wage data and expectations for interest rates. Finally, when monitoring market positions, remember that inflation drivers—even those from outside the country—can influence forward-looking indexes. This can lead to unexpected changes in spreads, especially if yield curves don’t align with pricing trends. It’s wise to reassess exposure to short-term factors, particularly if pricing signals shift faster than employment adjustments.

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