Canada services PMI falls in March as downturn lengthens

By Fergal Smith

TORONTO (Reuters) – The downturn in Canada’s services sector deepened in March as higher prices and elevated borrowing costs crimped customer demand but firms remained confident that better times lie ahead, S&P Global Canada services PMI data showed on Wednesday.

    The headline business activity index fell to 46.4 from 46.6 in February. A reading below 50 indicates contraction in the sector, with the index stuck below that threshold for ten straight months, the longest such stretch in three years.

    “Canada’s services economy remained mired in a downturn during March, with both activity and new business volumes declining again,” Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

    “The restrictive impact on market activity of high prices and elevated interest rates remains plain to see.”

The new business index showed sales declining for an eighth successive month, held back by reduced consumer confidence and high prices.

The input prices index rose to 61.0 from 59.5 in February, bolstered by higher wages, while service providers sought to pass on increased costs by raising sales prices.

Investors expect the Bank of Canada to leave its benchmark interest rate on hold at a 22-year high of 5% at a policy decision on April 10 but to then begin an easing cycle in June or July.

    The prospect of rate cuts supported hopes of a stronger economic climate in the next year. The future activity index eased only slightly to 63.6 after climbing to 63.7 in February, its highest level since April.

    The S&P Global Canada Composite PMI Output Index, which captures manufacturing as well as service sector activity, dipped to 47.0 in March from 47.1 in February.

    Data on Monday showed that the manufacturing PMI edged up to an 11-month high at 49.8 last month.

(Reporting by Fergal Smith)