Canada's Service Sector Expanded in October, PMI Data Indicates

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Canada's Service Sector Expanded in October, PMI Data Indicates

According to the S&P Global Canada Services Purchasing Managers' Index (PMI) data published on Tuesday, Canada's service sector recorded growth for the first time in October after five months. The main business activity index rose from 46.4 in September to 50.4, surpassing the crucial threshold of 50, indicating expansion.

This increase is attributed to a rise in new business volumes, particularly in the finance and insurance sectors, along with a more optimistic outlook for the future. Paul Smith, the economics director at S&P Global Market Intelligence, highlighted the positive movement in both activity and new business volumes since September.

The new business index, which tracks the amount of new work received by service providers, also reflected this growth, rising from 44.7 in the previous month to 50.5. The employment indicator, which measures job creation in the sector, showed improvement as well, increasing from 47.7 to 50.7.

Additionally, the future activity index, which forecasts business expectations for the next 12 months, reached its highest level since March at 62.9. This optimism is partly based on expectations that borrowing costs will decline.

Despite the positive indicators, Paul Smith warned that the overall operating environment remains fragile and cautioned that a single month’s data does not form a trend. He also noted that input price inflation continues to stay elevated, but the pass-through of these costs to customers has generally remained limited.

These figures come ahead of expectations that the Bank of Canada may further lower its benchmark interest rate to support the economy. The rate has been reduced by 125 basis points to 3.75% since June, and investors anticipate an additional cut of around one percentage point in the coming months.

From a broader perspective, the S&P Global Canada Composite PMI Output Index, which includes both manufacturing and services sector activity, also displayed a positive trend, rising from 47.0 in September to 50.7 in October. This was recorded as the highest level since April 2023.

Manufacturing PMI data released on Friday further supported the optimistic outlook, with the index reaching 51.1 in October, the highest level in 20 months, indicating expansion in the manufacturing sector.