Canada’s Services Economy Declines in July

By Fergal Smith

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

The headline business activity index rose slightly to 47.3 from 47.1 in June, remaining well below the 50 no-change threshold, signaling reduced activity.

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

However, there were some positive developments; sales volumes showed signs of stabilization and a slight increase in confidence, the first in five months.

The new business index improved to 49.2 from 47.9 in June, and the measure of future activity increased to 60.4, up from 59.0 the prior month, marking its first rise since February.

“Inflation remains stubborn, primarily driven by elevated wage pressures… This trend may make the Bank of Canada cautious about further rate cuts,” Smith added.

The input prices measure rose to 58.1 from 56.2 in June. Last week, the Bank of Canada lowered its benchmark interest rate for the second time in two months, reducing it to 4.5%.

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

Data released on Thursday indicated that Canada’s manufacturing PMI stood at 47.8 in July, the lowest this year, down from 49.3 in June.