A drone view shows shipping containers at the Port of Montreal in Montreal, Quebec, Canada April 14, 2025. REUTERS/Carlos Osorio/File Photo

By Promit Mukherjee

OTTAWA (Reuters) -Canada's manufacturing sector contracted in August, clocking seven monthly reductions in a row, as manufacturers grappled with low export demand due to U.S. tariffs, along with logistical and pricing pressures, data showed on Tuesday.

But despite a general contraction, by most metrics the manufacturing sector performed better than in previous months as concerns around a worst-case impact from tariffs receded.

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 48.3 in August, from 46.1 in July.

This is the best performance of the index since January when it recorded 51.6. Anything below 50 is considered contraction.

"Canada's manufacturing economy continued to struggle in the face of tariffs and uncertainty in August although, somewhat positively, to a noticeably lesser degree than earlier in the year," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

"Although continuing to decline, output, new orders and employment all recorded slower falls compared to July," he added.

The new orders index rose to 47.9 in August from 44.2 in July, while the measure of new export orders was at 44.8, up from 41.9 in the prior month.

S&P Global said in a note accompanying the data that manufacturers continued to blame their plight on lower demand from U.S. clients, a primary driver of exports.

Canada's gross domestic product data released last week showed the economy contracted by 1.6% in the second quarter, beating analysts' estimates, especially due to a 7.5% drop in exports.

But despite a dent in exports, domestic demand in the country stayed reasonably strong, Statistics Canada data showed.

"Hopefully, the manufacturing economy will continue this broad underlying path towards stabilization, but the outlook remains extremely uncertain," Smith said in his statement.

The stocks of purchases index rose to 46.3 in August from 44.1 in July, while the employment index was at 47.6, up from 46.2 in the same period.

Noting a combination of layoffs and the non-replacement of people who left their jobs, employment numbers overall declined for a seventh successive month, S&P Global said.

The input price index, a measure of inflation, rose to 61.6 in August from an improved 57.0 in July, it added.

(Reporting by Promit Mukherjee)