Canada's services PMI declines in June as trade policy uncertainty clips activity

By Fergal Smith

TORONTO, July 4 (Reuters) - Canada's services economy contracted at a steeper pace in June as uncertainty generated by U.S. trade policy depressed activity and cost pressures increased, S&P Global's Canada services PMI data showed on Friday.

The headline Business Activity Index fell to 44.3 last month from 45.6 in May, marking the seventh straight month the index has been below the 50 threshold. A sub-50 reading indicates contraction in the sector.

"Canada's services economy remained deep inside contraction territory during June, as uncertainty caused in the main by US trade policies continued to weigh heavily on activity and new business volumes," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

"International demand was again especially hard hit, and the outlook remains subdued given widespread uneasiness and challenges in forecasting business trends in the months ahead."

Canada sends about 75% of its exports to the United States, including autos, steel and aluminum, which have been hit by hefty U.S. tariffs. Prime Minister Mark Carney and U.S. President Donald Trump have agreed to reach some form of a trade deal by July 21.

Still, confidence in the outlook remained subdued. The Future Activity Index was at 54.9, down from 58.9 in May and its lowest level since March.

"Positively, firms added to their staffing levels in June although, reflective of the uncertain outlook and rising labour expenses, recruitment tended to be for part-time workers," Smith said.

"On the price front, operating costs rose to the greatest degree since October 2022 which served to push up selling prices at a faster pace despite the challenging business environment."

The Input Prices Index rose to 62.7 from 62.1 in May, while the prices charged measure was at 55.1, up from 54.6 and its highest level since May 2024.

The S&P Global Canada Composite PMI Output Index fell to 44.0 in June from 45.5 in May, extending the current downturn to seven months.

Data on Wednesday showed that the downturn in manufacturing activity deepened last month. The S&P Global Canada Manufacturing PMI edged down to 45.6 from 46.1 in May. (Reporting by Fergal Smith; Editing by Chizu Nomiyama)