The Canadian economy’s environment today finds itself facing increasing difficulties, as identified key performance indicators forecast a deterioration in most sectors. The current numbers are troubling and reflect more than cyclical trends. The data for November indicates a problematic situation of an economy fighting for continued growth. The economy’s current environment indicates a possible limit being reached regarding expected levels of growth.
The services sector propels a strong economic decline across the nation
The S&P Global Canada Composite PMI collapsed to a mere 44.9 in November compared to 50.3 in October. This is the lowest level in five months and clearly below the critical 50.0 level. The manufacturing component decreased to 48.4 compared to 49.6 in the previous month. However, the key driver of this decline was the services component, which crashed to 44.3 in November compared to 50.5 in October. This level indicates a sharp decline in this key driver of Canada’s economy, which employs millions of Canadians.
New business volumes continued with a troubling pattern, down for the twelfth month running and exerting downward pressure on levels of total output. Backlogs of work were down with sharp rates of decline that have not been observed since June 2020, suggesting that firms were operating with a level of spare capacity. Business confidence hit a five-month low and continued below its average levels. Firms appear to be pessimistic about their future.
Employment cuts reach levels unseen since the mid-2020 crisis
Jobs were cut back to the greatest extent since June 2020 as companies moved aggressively to reduce their workforce in response to a downturn in demand and a surplus of capacity in the Canadian economy. This constitutes a sharp decline in employment conditions as firms in diverse industries have moved to undertake comprehensive cuts in a bid to contain costs in a tough operating environment. This indicates that firms are also planning for a tough environment in the future.
Ivey PMI indicates persistent weakness in economies globally
The Ivey Purchasing Managers Index further added to the evidence of worsening economic conditions with a downturn to 48.4 in November compared to 52.4 in October. This represented a decline for the first time in six months, with a seasonally adjusted series below 50. The employment measure moved down to 48.0 from 51.8. This adds more fuel to fears that problems with employment may be spreading nationwide.
Pressures of price continued to be strong even as the economy slowed down. This was evident with the Ivey Price Index increasing to 66.1 from 64.3 in October. A situation where economic activity continues to decline while inflation remains a threat creates a tough environment for policymakers. This is because policymakers would have to address economic growth while dealing with inflation. The unadjusted PMI also dropped to 44.5 from 51.7.
Important economic data for November:
- Composite PMI: 44.9 (below 50
- Services PMI: 44.3 (compared with
- Manufacturing PMI: 48.4 (down from
- Employment index: 48.0 (decreased from
Input costs remain elevated despite weakening demand conditions
Despite this broad-based slowdown in the economy, input price inflation decreased only modestly to a three-month low while being high for most sectors. Output price inflation was small and marked a seventh-month low. This indicates that firms continue to face difficulties in transferring rising costs to customers. This margin squeeze could hamper profitability for firms and may potentially translate to more layoffs in a bid for firms to keep their financials stable.
The Canadian data for November indicates a concerning decline in economic activity that goes well beyond typical seasonal changes. The strong decline in services growth, with continued job losses and a downward trend in business confidence, points to tough conditions for the economy in 2026. The delicate balancing act for policymakers in this challenging environment would be addressing economic struggles while also dealing with inflation.
