Canada's services PMI hits six-month low in September

By Fergal Smith

TORONTO (Reuters) - The downturn in Canada's services economy deepened in September as firms shed jobs and new business dropped to a near four-year low, S&P Global Canada services PMI data showed on Thursday.

The headline business activity index fell to 46.4 from 47.8 in August, posting the lowest level since March. A reading below 50 shows a deterioration in activity.

"Canada's service sector endured a challenging month in September, with activity and new business volumes declining markedly and job losses registered for a second month in a row," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

The new business index fell to the lowest level since December 2020 at 44.7, down from 47.6 in August, while the measure of employment dropped to 47.7 from 49.4.

"The combination of softening labour market conditions, slower inflation and declining output adds support to the Bank of Canada's policy of pursuing looser monetary conditions," Smith said.

"Expectations are also clear amongst firms for further rate cuts in the coming months, with these seen as key in helping stimulate growth of sales and activity over the coming year."

Confidence in the outlook was a bright spot, with the future activity index climbing to a six-month high of 62.7.

Investors expect the Bank of Canada to cut its benchmark interest rate by three-quarters of a percentage point by the end of the year, matching the amount of easing since June. The policy rate is currently at 4.25%.

The S&P Global Canada Composite PMI Output Index, which captures manufacturing as well as service sector activity, fell to 47.0 last month from 47.8 in August.

Data on Tuesday showed Canada's manufacturing PMI came in at 50.4 in September, its first above the 50 no-change threshold in 17 months.

(Reporting by Fergal Smith; Editing by Chizu Nomiyama)