Services Economy Declines for Second Month

By Fergal Smith

TORONTO (Reuters) – Canada’s services economy showed further signs of deterioration in January, marking the second consecutive month of decline, according to S&P Global’s Canada services PMI data released on Wednesday.

The headline Business Activity Index increased to 49.0 from 48.2 in December but remained below the critical 50.0 mark, indicating a contraction in activity. Paul Smith, economics director at S&P Global Market Intelligence, noted, “Panellists continued to note soft underlying market demand, with uncertainty weighing on business decisions.”

Despite firms seeking lower interest rates to stimulate growth, concerns over tariffs kept confidence levels among panellists significantly below trend. Recently, U.S. President Donald Trump suspended the threat of steep tariffs on Mexico and Canada, agreeing to a 30-day pause in exchange for concessions on border and crime enforcement.

To support the economy, the Bank of Canada cut its benchmark interest rate by 25 basis points to 3% last Wednesday. The New Business Index remained below 50 for the second month, and the employment measure fell into contraction for the first time since September.

The future activity measure rose slightly to 60.9 from 60.1 in December but was still under the 64.4 average since December 2017’s first reading. Meanwhile, the S&P Global Canada Composite PMI Output Index increased to 49.5 from 49.0 in December, despite declines in the service sector. Lastly, data released on Monday indicated that Canada’s manufacturing PMI decreased to 51.6 in January from 52.2 in December.