Canada Services PMI Drops to 47.1, Deepens Contraction

Canada's services sector contracted in June, with the S&P Global Canada Services PMI Business Activity Index falling to 47.1 from 50.6 in May. That marked the sharpest decline since February and the fifth monthly contraction in 2026.

The drop was driven by softer demand. Businesses reported that high prices and geopolitical uncertainty led clients to delay spending. New business declined for a second consecutive month. Export demand remained weak, though the pace of decline in foreign orders eased to its slowest in nearly two years.

On the inflation front, the report offered some relief. Input cost inflation moderated from May's four-year high. Selling price increases also slowed. Still, firms continued to cite elevated energy costs and wage increases as keeping overall cost pressures above historical norms.

Employment edged higher for the second time in three months. Some firms added staff to improve capacity. That helped reduce backlogs of work, which fell at the fastest pace since January.

Business confidence weakened further, falling to its lowest level since November. Firms cited geopolitical tensions, domestic policy uncertainty, persistent inflation, and softer customer demand.

The services PMI is a key input for the Bank of Canada's growth assessment. A sustained contraction in services, which accounts for roughly 70% of Canada's GDP, typically raises the odds of a rate cut. The Bank next meets on July 15. The June CPI report, due July 16, will provide the next major data point on inflation. For a broader view of how macro data flows into currency moves, see our forex market analysis.

The composite PMI fell to 47.9 from 50.8, confirming that overall private-sector activity slipped into contraction despite continued strength in manufacturing.