By Paul Vieira
OTTAWA--Canada's manufacturing sector maintained growth in June, with factory owners increasing their payrolls due to rising production and new orders.
The Canada-specific data released Thursday from S&P Global also carried warnings about inflation.
The S&P Global Canada manufacturing purchasing managers index edged upward to 53.0 in June, from 52.9. This marks the third straight month above the 50 threshold--which signals expansion among the country's manufacturers.
The report should provide comfort to Canadian policymakers that the economy is rebounding after two straight quarters of negative growth. Data this week indicated a jump in economic output for April, positioning Canada for growth of more than 2% annualized in the second quarter.
Canadian factory owners have struggled under the weight of hefty U.S. tariffs on key industrial sectors such as steel, aluminum, automobiles and forest products. Statistics Canada figures suggest that manufacturing output fell 1.2% in April from a year ago, and factory payrolls declined 1% in the same time period.
S&P Global attributed June's gain to solid increases in output and new orders. As a result, employment levels rose at their fastest pace since the fall of 2024, or before President Trump won a second term and introduced a shakeup in trade policy.
The positive result does come with caveats, said Paul Smith, economics director at S&P Global Market Intelligence.
"Digging deeper below the surface reveals the continuation of some worrying trends, with growth still partly driven by stockpiling as firms and their clients continuing to face substantial supply-side disruption," said Smith, in reference to shipping delays caused by the conflict between the U.S. and Iran.
The S&P Global report also indicated that input prices for factory owners rose at their steepest pace in nearly four years, fueled by higher energy and transportation costs. Several factory owners added that U.S. tariffs were also a notable driver of higher prices.
Yet the report said producer prices--or what factory owners receive for their goods once they leave the plant--softened to a three-month low. The Bank of Canada has said there is limited evidence that higher energy prices have spread to other goods and services, in part because companies are reluctant to raise prices given underlying economic weakness.
"Companies retained a degree of confidence that production will continue to rise over the year ahead," S&P Global said. "However, worries over U.S. tariff policy continued to weigh on confidence."
The Trump administration on Wednesday said it would not renew the existing U.S.-Mexico-Canada trade treaty as required under the agreement's terms, unless America's trading partners agree to changes. This now subjects the pact to annual reviews for a decade, and is likely, economists say, to keep uncertainty levels among businesses at historically elevated levels.
Write to Paul Vieira at paul.vieira@wsj.com