OTTAWA: Canada’s manufacturing sector returned to growth in January as a key gauge of factory activity moved above the 50-mark that separates expansion from contraction, ending roughly a year of subdued conditions. The S&P Global Canada Manufacturing Purchasing Managers’ Index rose to 50.4 from 48.6 in December, signaling a modest improvement in overall business conditions across the sector.
The January reading marked the first return to expansion since early 2025, following an extended stretch in which manufacturers reported weaker output and demand. S&P Global said the headline improvement reflected a broad easing in the pace of decline seen late last year, with some firms reporting more stable production levels and an improved operating environment compared with prior months.
New business volumes improved but did not yet signal a full recovery in demand. The new orders index rose to 49.3 from 47.3, remaining slightly below the expansion threshold. Survey respondents pointed to continued caution among customers, though the month-to-month increase indicated that the slide in domestic demand moderated as the start of 2026 approached.
Export conditions remained weak, with foreign demand continuing to weigh on manufacturers. The new export orders index rose to 44.6 from 43.9, still indicating a marked contraction. Some firms cited softness in U.S. related demand in their survey responses, while the overall data showed that external orders remained a key drag even as the headline PMI moved back into expansion territory.
Demand Improves, Exports Still Weak
Employment conditions strengthened, with staffing levels rising for the first time in about a year. The employment index increased to 50.6 from 48.7, pointing to a modest pickup in hiring across the sector. Firms also reported improved purchasing and inventory dynamics, with the stocks of purchases index rising to 50.1 from 47.9, suggesting a shift toward replenishment after earlier efforts to limit inputs.
Business sentiment also firmed at the start of the year. S&P Global reported that optimism improved to a three-month high, reflecting more positive expectations among some manufacturers about near-term conditions. The survey results showed a more balanced tone compared with late 2025, when firms had frequently cited subdued demand and uncertainty that constrained production decisions and purchasing activity.
Costs Rise as Firms Lift Prices
Price pressures intensified, according to the survey’s cost indicators. The input price index climbed to 59.0 from 56.9, reflecting faster increases in the cost of materials and other inputs. Some respondents cited higher costs linked to tariffs and related trade frictions. Manufacturers also reported a strong rise in their own selling prices, described as the steepest increase since March 2025.
The January improvement followed a prolonged downturn in late 2025. In December, the PMI recorded 48.6, extending a contraction streak that spanned 11 consecutive months. With the headline index now back above 50, the latest data point to a tentative stabilization in Canadian factory activity, while demand measures and export orders indicate that the recovery in manufacturing conditions remains uneven across markets.