OTTAWA, Feb 2 (Reuters) - Canada's manufacturing sector grew in January, its first such expansion in a year, data showed on Monday, as sentiment improved to a three-month high amid expectations of economic
growth this year.
However, new orders continued to fall in January and tariffs weighed the overall sector down with falling exports and rising input costs.
The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI), a composite index designed to provide an overview of the health of the manufacturing sector, moved up to 50.4 in January, up from 48.6 in December.
This is the best performance of the index in a year when it recorded 51.6 last January. Anything above 50 is considered an expansion in activity.
"Canada's manufacturing sector started the new year on a more positive footing," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.
"Output stabilised, after nearly a full year of continuous contraction, whilst confidence in the outlook improved and marginal jobs growth was recorded for the first time in 12 months," he said.
S&P Global said in a note accompanying the data that growth reflected a combination of clearing backlogs of work and the release of new products.
The new orders index rose to 49.3 in January from 47.3 in December, while the measure of new export orders was at 44.6, up from 43.9 in the prior month.
This decline was in part driven by sustained export weakness, especially to the U.S. Manufacturers reported that tariffs continued to negatively impact trade, the statement added.
The Bank of Canada Governor Tiff Macklem said in an interview with Reuters last week that while most of the central bank's forecasts have not changed since October, there is a high level of uncertainty from Trump's trade policy and geopolitical risks.
He said he anticipated the potential of a new economic shock.
"The latest survey data overall points to an underlying resilience in the manufacturing economy," Smith said.
However, ongoing inflation and trade uncertainties seem set to remain dominant themes in 2026 and therefore the primary challenges to navigate for many manufacturers in the coming year, he added.
The stocks of purchases index rose to 50.1 in January from 47.9 in December, while the employment index was at 50.6, up from 48.7 in the same period.
The input price index, a measure of inflation, rose to 59.0 in January from 56.9 in the prior month.
Tariffs remained a key driver of cost inflation, which accelerated noticeably during January to a five-month high, S&P said, adding that manufacturers increased their own changes markedly and to the greatest degree since March 2025.
(Reporting by Promit Mukherjee; Editing by Chizu Nomiyama)
