March’s Canada S&P Global PMI registered 46.3, down from 47.8 the previous month, indicating a downturn in the manufacturing sector. This report shows the steepest drop in new orders since May 2020, signalling a sharp decline from February.
Businesses anticipate reduced production levels over the next year, with significant decreases in production, purchases, and employment. Concerns over potential tariffs are affecting new work and export trade, leading firms to lower inventories and halt hiring.
Rising Input Costs And Inflation Risks
Input costs have risen to their highest since summer 2022, intensifying inflationary pressures. Following the PMI announcement, the USD/CAD increased by 17 pips to 1.4404.
The latest data should raise concern. The drop in the Canada S&P Global PMI to 46.3 from 47.8 is not just a statistical blip; it reflects a marked contraction in manufacturing activity. Anything below 50 suggests the sector is shrinking — and we’re now at levels not seen since the early days of the pandemic. The sharp fall in new orders, the worst since May 2020, underlines that this isn’t a short-term dip. Production pipelines are drying up, and the reduction in both employment and purchases by firms adds weight to a picture of businesses bracing for leaner months.
Input costs are surging again, reaching their highest point since mid-2022. This isn’t happening in a vacuum; inflationary pressures, already making monetary policy decisions harder, could gain momentum here. That sharpest uptick in nearly two years isn’t likely to go unnoticed by central decision-makers, especially with labour markets still tight in certain regions.
The PMI release immediately moved the FX market, with a 17-pip jump in USD/CAD, landing at 1.4404. That’s not a random walk — traders priced in the chance of further economic fragility hitting the loonie. It’s telling that sentiment moved that swiftly, despite no major surprise headline. The read-through here is that poor output data and rising cost burdens create a tough backdrop for future rate stabilisation calls.
Manufacturing Slowdown And Market Response
For us, the data reinforces a view that Canadian output is losing energy faster than expected. As order books shrink, companies are clearly opting for caution, reflected in both hiring and inventory restraint. There’s little incentive for manufacturing to ramp up, especially with overseas demand hit by tariff fears.
Export-heavy sectors seem especially on edge, likely because of trade uncertainties that haven’t lifted. Concerns about tariffs are dragging on new work, which in turn makes it harder for firms to justify forward-buying materials or expanding payrolls — a feedback loop that doesn’t reverse on sentiment alone.
Given the contraction in production and forward expectations skewing negative, it appears that momentum remains soft. Positioning strategies should consider how worsening data inputs might affect pricing across broader asset classes tied to domestic output trends and cost dynamics.
More volatility in the currency pairing could follow as weaker economic figures nudge the balance in favour of lower growth projections. Directional option strategies may prefer skewed exposure rather than straddling multi-month ranges. That’s not a punt but a reflection of how each successive release seems to chip away at the argument for resilience.
Inventory management is another telltale indicator here. When firms deliberately run lean, there’s less room for error in demand forecasting. Leaner stocks are often a prelude to reduced throughput — not a one-off, but a pattern forming.
While energy exports normally cushion broader weakness, manufacturing’s current downside could deepen imbalances, particularly when external demand wavers. Pricing signals, especially the jump in input costs, could start feeding into other segments if not offset soon. It pays to be selective in interpreting inflation — cost-push dynamics driven by weak volume growth don’t resolve cleanly.
