Canada's Services Economy Sees First Expansion in Five Months

By Fergal Smith

TORONTO (Reuters) – Canada's services economy expanded for the first time in five months in October as the amount of new business increased and confidence in the outlook improved, according to S&P Global Canada services PMI data released on Tuesday.

The headline business activity index rose to 50.4 from 46.4 in September, moving above the 50 threshold for the first time since May. A reading above 50 indicates sector expansion.

> "Canada's services economy enjoyed a positive start to the final quarter of the year, with both activity and new business volumes rising since September," said Paul Smith, economics director at S&P Global Market Intelligence.

The new business index rose to 50.5 from 44.7 in September, with notable growth in the finance and insurance sector. The employment measure climbed to 50.7, up from 47.7, and the future activity index edged up to 62.9, its highest level since March, bolstered by expectations of lower borrowing costs.

> "One month does not of course make a trend, and on an underlying basis, the operating environment remains fragile overall," Smith cautioned.

Input price inflation continues to be high, though the pass-through of costs to clients is generally contained, which could encourage policymakers to consider further rate cuts.

Investors anticipate that the Bank of Canada will lower its benchmark interest rate by roughly one percentage point in the coming months, following a reduction of 125 basis points since June, bringing it to 3.75%.

The S&P Global Canada Composite PMI Output Index, which measures manufacturing and service sector activity, rose to 50.7 last month from 47.0 in September, its highest level since April 2023.

Data released on Friday also indicated that Canada's manufacturing PMI reached a 20-month high of 51.1 in October.