Canada’s services PMI shows sector contracting further in July #CanadaFinance

By Fergal Smith

TORONTO (Reuters) – Canada’s services economy deteriorated in July as activity and new business declined, while elevated wage costs contributed to increased inflation pressures, S&P Global Canada services PMI data showed on Tuesday.

The headline business activity index edged up to 47.3 from 47.1 in June but was holding well below the 50 no-change threshold, signaling reduced activity.

“The latest PMI report on the Canadian services economy paints a subdued picture of sector performance, with activity and new business falling again,” Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

“That said, there were some positive developments, with sales volumes moving towards stabilization and a slight pick-up in confidence for the first time in five months.”

The new business index rose to 49.2 from 47.9 in June and the measure of future activity was at 60.4, up from 59.0 in the prior month, notching its first increase since February.

“Inflation remains stubborn, however, and is largely driven by elevated wage pressures … That’s the kind of development that will make the Bank of Canada a little wary of enacting further rate cuts,” Smith said.

The input prices measure climbed to 58.1 from 56.2 in June. Last week, the BoC cut its benchmark interest rate for the second time in two months, lowering it to 4.5%.

The S&P Global Canada Composite PMI Output Index, which captures manufacturing as well as service sector activity, fell to 47.0 last month from 47.5 in June, marking its lowest level since March.

Data on Thursday showed Canada’s manufacturing PMI came in at 47.8 in July, its lowest level this year, down from 49.3 in June.

(Reporting by Fergal Smith; Editing by Paul Simao)