Amid escalating US trade policy uncertainty, Canada’s services economy contracted at a steeper pace in June with depressed activity and cost pressures increasing as revealed by S&P Global’s Canada services PMI data.

The headline Business Activity Index fell to 44.3 last month from 45.6 in May, marking the seventh straight month the index has been below the 50 threshold. A sub-50 reading indicates a contraction in the sector.

Canada sends about 75% of its exports to the United States, including autos, steel and aluminium, which have been hit by hefty US tariffs. Canadian Prime Minister, Mark Carney and US President Donald Trump have agreed to reach some form of a trade deal by July 21. 

Still, confidence in the outlook remained subdued. The Future Activity Index was at 54.9, down from 58.9 in May and its lowest level since March. The Input Prices Index rose to 62.7 from 62.1 in May, while the prices charged measure was at 55.1, up from 54.6 and its highest level since May 2024. 

The S&P Global Canada Composite PMI Output Index fell to 44.0 in June from 45.5 in May, extending the current downturn to seven months. Data last week showed that the downturn in manufacturing activity deepened last month. 

The S&P Global Canada Manufacturing PMI edged down to 45.6 from 46.1 in May. Paul Smith, economics director at S&P Global Market Intelligence commented, “Canada’s services economy remained deep inside contraction territory during June, as uncertainty caused in the main by US trade policies continued to weigh heavily on activity and new business volumes.” 

He noted, “International demand was again especially hard hit, and the outlook remains subdued given widespread uneasiness and challenges in forecasting business trends in the months ahead. Positively, firms added to their staffing levels in June, although, reflective of the uncertain outlook and rising labour expenses, recruitment tended to be for part-time workers.” 

On the price front, operating costs rose to the greatest degree since October 2022 which served to push up selling prices at a faster pace despite the challenging business environment.