Canada Services Sector Contraction Eases in February

The S&P Global Canada Services PMI rose to 46.5 in February 2026 from 45.8 in January, signaling a slower pace of contraction in activity. New orders declined for the 15th consecutive month, though the rate of decline was the weakest since October 2025. With demand still weak, firms either chose not to replace departing workers or resorted to layoffs, pushing employment down for the sixth straight month. Input price inflation continued to ease, reaching its lowest level since September 2024, while output prices rose slightly faster, though still well below input cost levels. Business confidence edged up to its highest since October 2025, fueled by hopes that demand will improve, partly due to upcoming sporting events expected to boost tourism in Canada.

The S&P Global Canada Services PMI fell to 45.8 in January from 46.5, signalling a third consecutive monthly decline in service sector output. New business volumes contracted for a fourteenth straight month, with the latest drop the steepest since April. New export orders also declined, as some firms cited tariffs as making trade with the US unprofitable. Weak demand led to a sharp fall in backlogs, even as employment declined for a fifth month, though only modestly. Input costs rose sharply, driven by higher supplier prices and tariffs, while competitive pressures and weak demand limited firms’ ability to raise prices. Despite these conditions, business confidence remained positive, supported by expectations of stronger activity and easing trade uncertainty.

The S&P Global Canada Services PMI rose to 46.5 in December 2025 from 44.3 in November but remained in contraction territory. Apart from growth in October, the index stayed below the 50.0 no-change mark throughout 2025. Business activity fell as new work volumes fell for a thirteenth consecutive month, amid subdued demand and clients’ reluctance to commit to contracts. New export business remained weak, posting another sharp monthly drop. With activity and new orders under pressure, service providers continued to cut employment mainly through the non-replacement of leavers, marking the fourth straight month of job reductions. Despite softer demand, wage costs kept operating expenses elevated, prompting firms to raise selling prices for the eighth consecutive month. Inflation edged up but remained below earlier 2025 levels. Looking ahead, firms were optimistic about activity, though confidence stayed below its historical average amid uncertainty over tariffs and government policies.