Canada's services PMI shows return to growth in October

By Fergal Smith

TORONTO, Nov 5 (Reuters) - Canada's services economy expanded for the first time in five months in October as the amount of new business increased and confidence in the outlook improved, S&P Global Canada services PMI data showed on Tuesday.

The headline business activity index rose to 50.4 from 46.4 in September, moving above the 50 threshold for the first time since May. A reading above 50 shows expansion in the sector.

"Canada's services economy enjoyed a positive start to the final quarter of the year, with both activity and new business volumes rising since September," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

The new business index rose to 50.5 from 44.7 in September, led by the finance and insurance sector. The employment measure was at 50.7, up from 47.7 and the future activity index edged up to 62.9, its highest level since March, supported by the prospect of lower borrowing costs.

"One month does not of course make a trend, and on an underlying basis, the operating environment remains fragile overall," Smith said.

"Input price inflation is also uncomfortably high, although the pass-through of higher costs to clients is broadly contained. That should provide sufficient confidence to policymakers to continue delivering rate cuts."

Investors expect the Bank of Canada to lower its benchmark interest rate roughly one percentage point further in the coming months to support the economy, after reducing the rate by 125 basis points since June to 3.75%.

The S&P Global Canada Composite PMI Output Index, which captures manufacturing as well as service sector activity, rose to 50.7 last month from 47.0 in September, its highest level since April 2023.

Data on Friday showed that Canada's manufacturing PMI rose to a 20-month high of 51.1 in October. (Reporting by Fergal Smith)