Canada's services sector is facing increased headwinds as indicated by the latest S&P Global Canada Services PMI data released Wednesday. The Business Activity Index fell to 45.8 in January, a further decline from 46.5 in December, marking the third consecutive month of contraction in the service sector. A PMI reading below 50 indicates a deterioration in business activity.
According to Paul Smith, economics director at S&P Global Market Intelligence, the downturn in Canada's service sector accelerated in January, with both activity and new business volumes declining more sharply than at the end of last year. The new business measure has now contracted for fourteen consecutive months, dropping to 44.9 from 45.6 in December. Businesses cite tariffs and trade uncertainty, along with broader market instability, as key factors impacting their performance. This comes as Canadian Prime Minister Mark Carney has been advocating for diversifying trade away from the United States, citing U. S. tariffs on key Canadian imports.
On a slightly positive note, the input prices index eased to 58.0, the lowest level since September 2024, due to vendor competition limiting price increases. However, the S&P Global Canada Composite PMI Output Index, which combines manufacturing and services, also dipped to 46.4 in January. In contrast, the manufacturing sector showed signs of recovery, expanding in January for the first time in a year, with the S&P Global Canada Manufacturing PMI rising to 50.4.
The services sector is a critical component of the Canadian economy, and this continued contraction raises concerns about overall economic growth. The Bank of Canada will be closely monitoring these trends as it considers future monetary policy decisions. The latest services PMI data underscores the challenges facing Canadian businesses amidst ongoing trade tensions and economic uncertainty.
