Canada’s services sector shrank for the ninth consecutive month in August, as lingering uncertainty over U.S. tariffs continued to weigh on export demand and overall business confidence, according to S&P Global’s latest Purchasing Managers’ Index (PMI) data released Thursday.
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The headline Services Business Activity Index fell to 48.6 in August, down from 49.3 in July. Any reading below 50 indicates contraction in the sector.
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“August marked another challenging month for the Canadian services economy, with both activity and new work declining more sharply than in July,” said Paul Smith, Economics Director at S&P Global Market Intelligence. “Uncertainty—particularly around tariffs—continued to dampen market activity and demand, according to service providers.”
The index measuring new business dropped to 46.9 from 48.7, while the new export business index fell to 38.6—its lowest level since April—reflecting growing hesitation among international clients to sign new contracts.
The economic pressure comes amid rising trade tensions, as the United States imposes a 35% tariff on Canadian goods not covered under the Canada-U.S.-Mexico Agreement (CUSMA), along with sector-specific tariffs on steel, aluminum, and autos. The trade agreement is scheduled for a formal review in July 2026.
“Unsurprisingly, tariff-related uncertainty also eroded business confidence,” Smith added. “The outlook for the sector remains closely tied to how trade policy unfolds in the coming months.”
The future activity index, which reflects business expectations for the year ahead, dipped to 58.2 from 60.9 in July—still positive, but showing waning optimism.
One relative bright spot in the report was employment: the jobs index remained above the 50 mark for the fourth straight month, signaling continued hiring in the sector. Meanwhile, cost inflation eased to a seven-month low, although businesses reported that tariffs were still contributing to higher supplier prices.
The broader Canadian economy remains under pressure. The S&P Global Composite PMI Output Index, which includes both services and manufacturing, slipped to 48.4 in August from 48.7 in July, extending the overall contraction to a ninth month.
Earlier in the week, data showed Canada’s manufacturing sector also remained in contraction territory, though the pace of decline slowed, with the Manufacturing PMI rising to 48.3 in August from 46.1 in July.
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