Canada factory activity rises despite conflict-driven supply chain challenges

Canada's manufacturing sector extended its expansion for the sixth consecutive month in June, with production, new orders and employment posting steady gains. However, escalating supply chain disruptions linked to the West Asia conflict pushed input cost inflation to its highest level in nearly four years, highlighting growing pressure on manufacturers.

According to the latest S&P Global Canada Manufacturing Purchasing Managers' Index (PMI), the headline index edged up to 53.0 in June from 52.9 in May, remaining above the 50-mark that separates expansion from contraction.

Factory output improved modestly, with the production index rising to 52.1 from 52.0 in the previous month. Employment also strengthened, climbing to 51.9, its highest reading since October 2024, as manufacturers increased hiring to meet rising workloads.

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Despite the upbeat headline numbers, underlying challenges persisted.

Paul Smith, Economics Director at S&P Global Market Intelligence, said that while Canadian manufacturers continued to benefit from stronger output and new orders, part of the growth was being supported by inventory stockpiling as companies sought to cushion themselves against worsening supply chain disruptions.

The survey showed suppliers' delivery times lengthened at the fastest pace since September 2022 as the conflict in the Middle East disrupted global shipping routes, delaying the movement of goods and raw materials.

Manufacturers also faced mounting cost pressures. The input price index climbed to 67.2 in June from 66.5 in May, marking its highest level since July 2022. Rising oil prices, higher transportation costs and ongoing US tariffs contributed to the increase in input costs.

Meanwhile, business confidence weakened, with manufacturers' outlook slipping to a three-month low as firms remained cautious over persistent geopolitical tensions and supply-side uncertainties.