Canada services sector downturn ends as new business climbs

By Fergal Smith

TORONTO (Reuters) - Canada's services economy grew in May for the first time in a year as firms saw an increase in new business and hired workers at a faster pace, S&P Global Canada services PMI data showed on Wednesday.

The headline business activity index rose to 51.1 from 49.3 in April, rising above the 50 threshold for the first time since May last year and posting its highest level since April 2023. A reading above 50 shows expansion in the sector.

"There was a welcome return to growth in May amid evidence of a more stable demand environment benefiting Canadian service providers," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

"Companies took on additional workers not only in response to current workloads but in anticipation of further growth in the coming 12 months."

The new business index rose to 51.8 from 50.0 in April, led by growth for providers of finance and insurance as well as information and communications services, and the employment measure was at 51.2, up from 50.6.

"Higher employment led to an increase in typical labour costs, and this was a key factor behind another steep rise in overall operating expenses," Smith said.

Faced by higher operating expenses, firms sought to protect margins by raising prices but the pace of increase eased.

The prices charged index fell to 55.4 from 56.3 in April, while the measure of input prices was at 60.0, dipping from 60.3.

The S&P Global Canada Composite PMI Output Index, which captures manufacturing as well as service sector activity, also climbed above the 50 threshold for the first time in a year. It was at 50.6 in May, its highest level since April 2023 and up from 49.3 in the previous month.

Data on Monday showed that Canada's manufacturing PMI edged lower to 49.3 last month from 49.4 in April.

(Reporting by Fergal Smith; Editing by Chizu Nomiyama)