Manufacturing growth continues in May despite rising costs, supply pressures

Canada’s manufacturing sector expanded for a second straight month in May, supported by higher output, new orders and employment, though rising costs and supply chain disruptions weighed on confidence.

The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index fell to 52.9 in May from 53.3 in April but remained above the 50 mark that signals growth.

S&P Global said the expansion was driven by increased demand and success in securing new customers, largely from domestic markets, while export orders were little changed.

However, the outlook remained subdued as tariffs and uncertainty linked to the war in Iran caused hesitation among clients and dampened business confidence.

“Canada’s manufacturing economy registered a solid expansion during May, underpinned by further rises in both output and new orders, plus the best increase in employment since October 2024,” said Paul Smith, economics director at S&P Global Market Intelligence.

“Firms reported a general upturn in demand and success in securing new customers, despite ongoing anecdotal evidence that tariffs and the uncertainty caused by the war in Iran were weighing on product markets.”

Supply chain issues intensified during the month, with delivery times worsening sharply due to the Middle East conflict and ongoing shortages at suppliers.

At the same time, cost pressures accelerated. Manufacturers reported the steepest increase in input costs since July 2022, driven by higher energy prices, supplier charges, transportation costs and tariffs.

Companies passed on those increases, raising selling prices at the fastest pace since July 2022.

Employment rose for a second consecutive month, with the pace of hiring the strongest since October 2024, although firms also reported growing backlogs of work, signalling capacity pressures.

“This leads to the rather sombre conclusion that current growth is somewhat illusory and laced with downside risks, a sentiment that manufacturers themselves have also reached as confidence in the outlook eased back in May and remained well below par,” Smith said.