Canada: Services sector business activity rises in May
The S&P Global Canada Services Purchasing Managers’ Index (PMI) rose to 51.1 in May from 49.3 in April. As a result, the index moved above the 50.0 no-change threshold, and signaled an improvement in services-sector business activity compared to the previous month.
May marked the first uptick in new work for services firms since July 2023. This was attributed to success in securing new clients and opening new stores, which helped some firms secure new domestic work despite a marginal fall in new export business. The positive trends in new business and activity encouraged Canadian service providers to hire additional workers for the second consecutive month.
Cost pressures remained a significant concern, with reports of higher salaries contributing to rising operating expenses. Firms attempted to pass on these increased costs to protect margins, leading to a rise in prices charged for services. Although the rate of charge inflation eased since April, it remained marked and above the survey average. Finally, business sentiment softened to the lowest level since the start of the year, driven by lingering recession concerns.
On prices, Paul Smith, economics director at S&P Global Market Intelligence, said:
“Higher employment led to an increase in typical labour costs, and this was a key factor behind another steep rise in overall operating expenses. Although firms are broadly expecting interest rates to be cut and inflation to keep falling, signs of some tightness in the labour market leads to some concern that sticky price pressures may persist in the medium-term.”