Jobs cuts seen in Canada amid spike in uncertainty

Recent PMI data has highlighted growing concerns regarding the Canadian economy and labour market. Following a robust period of hiring activity in the wake of pandemic-related disruptions, employment growth across the Canadian private sector was only modest on average throughout 2023 and 2024. The start of 2025 then marked a renewed decline in payroll numbers, with the pace of job losses in April among the fastest since mid-2020.

Employment is falling as companies worry about current and future output. Private sector output contracted for a fifth consecutive month in April, experiencing its steepest decline in nearly five years, and business confidence was little-improved from March's recent low.

Companies scale back their staffing levels

Canadian employment slipped into contraction territory back in January. Further cuts have since been made in each of the following months, thereby resulting in the longest sequence of job shedding since the start of 2021. Looking at Composite PMI data, which covers both manufacturing and services sectors of the economy, Canada recorded the second-sharpest decline of all major economies tracked by S&P Global in April, behind only the UK.

Both monitored sectors, manufacturing and services, recorded job shedding in April, with the rates of reduction broadly similar.

The downturn in employment was closely linked to the prevailing economic and political uncertainties that have fostered a challenging landscape for businesses. Central to this instability are the ongoing ramifications of US tariff policies, which have disrupted trade dynamics and altered cost structures for numerous companies. Consequently, many organizations are taking a cautious stance to staffing levels, resulting in diminished hiring within these sectors.

Output and new business register severe contractions

In April, output plummeted at the fastest rate seen in almost five years, while the decline in new business was close to March's near five-year low. The latter serves as a forward-looking indicator, signalling a potentially more challenging path for Canada in the months ahead.

Additionally, amid the backdrop of unpredictable US trade policies, Canadian firms are grappling with the knock-on effects of a significant downturn in trade conditions, particularly evident in the most recent survey periods. New export orders have plummeted at historically sharp rates, with manufacturers reporting the second-steepest decline in the series history in April. This drop was only outpaced by the contraction experienced five years ago at the beginning of the COVID-19 pandemic. However, exports of services have also fallen sharply in response to the deteriorating economic environments both at home and in export markets, notably the US. Note that services exports include spending by tourists in Canada.

The trade environment has also deteriorated at a global level, with April seeing the strongest decline in new export orders worldwide in over two years.

The newly released tariff trackers, added to the existing S&P Global PMI™ Comment Trackers (a dataset that harnesses the qualitative evidence provided by PMI survey contributors around the world) signal that tariffs are greatly contributing to the slump in exports.

Low confidence signals caution towards upcoming year

Trade and economic uncertainty is evident in the activity prospects for Canadian manufacturers and service providers. Excluding the early pandemic months, when firms expressed significant pessimism towards output prospects, the data from March represented the lowest level of optimism for the year-ahead outlook since the series began in December 2017.

Although the subsequent uptick in the PMI's future expectations index in April marked the first improvement in confidence in six months, the latest reading still fell well below the long-term average, indicating a persistent gloomy mood among Canadian firms.

We can also analyse the historical connection between business expectations and employment by examining the z-scores of their respective indices (which looks at the degree to which data diverges from long-run averages). This comparison provides insights into how fluctuations in business sentiment correlate with changes in employment levels over time.

A generally positive correlation is typically anticipated between employment and future activity z-scores. When confidence is high, indicated by positive z-scores, businesses generally take on more staff, which is mirrored in higher future z-scores. Conversely, weak confidence figures lead to conservative views on hiring outlook.

However, since 2022, the employment z-score has predominantly lingered in negative territory, following a period of recovery in 2021 when businesses began rebuilding their staffing levels post-pandemic. Initially hovering close to zero, the employment z-scores in 2025 have drifted further from the long-term average, signalling that hiring trends are significantly below what is considered normal.

As the year unfolds, the trend of below-average employment z-scores has continued, raising concerns about employment stability and its potential repercussions for economic growth in Canada. Moreover, the interplay between the employment z-score and future activity z-hints at a further acceleration in job losses unless confidence revives from its current low level.

The recent tariff changes initiated by the US are intricately tied to the subpar employment and future activity z-scores observed in Canada. The adverse effects on employment, coupled with economic uncertainty and sector-specific challenges, contribute to a challenging economic landscape, as evidenced by the negative z-scores for 2025.

Maryam Baluch, Economist, S&P Global Market Intelligence

Tel: +44 1344 327 213

maryam.baluch@spglobal.com

Purchasing Managers' Index™ (PMI^®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.