Canada’s S&P Global May manufacturing PMI increased to 46.1 from April’s 45.3. However, this still indicates a contraction, as a score below 50 suggests a decline. This marks four consecutive months of contraction. Output and new orders have dropped significantly, with international demand—especially for exports—much weaker than domestic demand. Customers are hesitating to place new orders mainly due to tariff uncertainties. Businesses are cutting back on both input and finished goods inventories to save costs. Many companies are relying on existing stock because of delays from suppliers. Additionally, there are ongoing supply chain issues, with longer delivery times blamed on port congestion and customs delays. Inflation pressures are rising, nearing March levels, primarily due to tariffs impacting input costs. While businesses have increased output prices, the pace of this increase is at its lowest in three months. Employment has weakened, with job losses for the fourth month in a row, reaching the highest level since June 2020. Although order backlogs are decreasing, there remains high spare capacity. Purchasing activity has shrunk for the fifth month, indicating a drop in production needs. Business sentiment is low, as hopes for economic stability are hindered by trade policy uncertainties, especially affecting U.S. trade flows. The current landscape poses significant challenges for Canadian manufacturers due to rising costs and unpredictable trade conditions. Canada’s May manufacturing PMI score of 46.1, while slightly up from April, continues to raise concerns. A score below 50 indicates ongoing contraction, meaning factories are producing and receiving fewer orders. This trend isn’t just a temporary dip; export demand is struggling more than domestic demand, likely due to tensions in international trade policies. Businesses are preparing for uncertainty by streamlining operations, reducing their inventories to avoid overproduction. Some are cutting back on new purchases not because they are confident in supply but because of delivery delays associated with congested ports and customs holdups. These disruptions are complicating scheduling and financial planning. Inflation is also a concern. Input prices are rising again, nearing levels last seen in March, mainly due to tariffs. While manufacturers are passing some of these costs onto customers by raising output prices, their ability to do so is diminishing. The slowing rate of price increases indicates limited room to raise prices further without risking even lower demand. On the employment front, the situation is grim. The sector has experienced job losses for four straight months, with the pace of cuts increasing. This is the largest decline since mid-2020 when the pandemic had a major impact. This highlights that staffing needs are well below expectations, not due to improved efficiency, but simply because work demands have decreased. Spare capacity is high, and with fewer backlogged orders, factories are often running idle. The decline in purchasing activity for the fifth month confirms that production is not expected to increase anytime soon. This signals ongoing caution rather than signs of a rebound. The overall mood is subdued, with lackluster confidence. Businesses are balancing internal expectations against global uncertainties, particularly in the U.S. trade environment. Broader macroeconomic worries, especially regarding tariff decisions and supply chain stability, continue to dampen sentiment. In this environment, demand is decreasing, costs are rising, and policy changes complicate planning. For those managing futures and options in these sectors, the challenge lies not only in tracking output but also in responding to significant macro adjustments as they happen.

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