By Fergal Smith
In the latest report from S&P Global Canada services PMI data, it has been revealed that Canada's services economy has contracted for the third straight month in August. This contraction was primarily due to firms employing fewer workers and wildfires contributing to a slowdown in new business.
The headline business activity index saw a slight increase to 47.8 from 47.3 in July, but it still remains significantly below the 50 no-change threshold, indicating a decrease in activity.
According to Paul Smith, the economics director at S&P Global Market Intelligence, "The performance of Canada's services economy remained subdued in August, with concurrent solid declines in both activity and new business signalled by the survey. Firms bemoaned slow market conditions and a general lack of demand, with some also commenting that wildfires were having a negative impact on their businesses."
The new business index fell to a six-month low of 47.6, down from 49.2 in July, while the measure of employment dropped below 50 for the first time since last December.
With hundreds of wildfires ravaging the western provinces of Alberta and British Columbia, critical infrastructure has been threatened and communities have been evacuated. This has further added to the challenges faced by businesses in the region.
Looking ahead, concerns about borrowing costs remaining high despite expectations of rate cuts in the coming months have been expressed by companies. The recent decision by the Bank of Canada to cut its benchmark interest rate for the third time since June to 4.25% reflects the ongoing efforts to stimulate the economy.
The S&P Global Canada Composite PMI Output Index, which includes both manufacturing and service sector activity, rose to 47.8 last month from 47.0 in July, showing some signs of improvement. Additionally, the latest data on Canada's manufacturing PMI indicated a slight increase to 49.5 in August, up from 47.8 in July.
Analysis:
In conclusion, the recent data from S&P Global Canada services PMI highlights the challenges faced by Canada's services economy, including subdued activity, declining new business, and concerns about high borrowing costs. The impact of wildfires in the western provinces has further exacerbated these challenges. The recent rate cuts by the Bank of Canada aim to address these issues and stimulate economic growth. It is important for businesses to remain vigilant and adapt to the changing economic landscape in order to navigate these challenging times effectively.