Key Takeaways:
Canada's private sector activity was largely stagnant in April, as a recovery in manufacturing was offset by a continued, albeit slower, contraction in the services industry.
Canada’s economy sent conflicting signals in April, with a surge in manufacturing activity to a 53.3 PMI reading contrasting sharply with a services sector that remained in contraction for the sixth consecutive month at 49.2.
"Whilst Canada's service sector continued to contract, it did so only marginally in April," said Paul Smith, economics director at S&P Global Market Intelligence. Smith noted the manufacturing growth appears to be driven by worry over future price hikes and product availability rather than a sustainable uplift in demand.
The S&P Global Canada manufacturing purchasing managers index rose to 53.3 in April from 50 in March, marking the third month of expansion in the last four. In contrast, the services PMI, while at a six-month high, was up from 47.2 in March, still below the 50 threshold that separates growth from contraction.
The divergence paints a complex picture for the Bank of Canada. While the manufacturing rebound was spurred by fears of rising prices due to the Middle East conflict and tariffs, the services sector also reported the steepest rise in selling prices in two years, driven by higher labor costs. This suggests mounting inflationary pressures that could complicate the central bank's path forward on interest rates.
The recovery in Canadian manufacturing was fueled by a sharp increase in new orders, the largest in over four years, and the strongest production growth since May 2022. However, the growth is seen as precautionary. S&P Global's survey indicated that companies were building up stocks in anticipation of future supply chain disruptions and price increases, particularly for energy and freight. Input costs for manufacturers rose by the greatest degree in over three-and-a-half years.
Activity in Canada's services industry continued to contract in April, though the pace of decline eased. The S&P Global Canada services purchasing managers index (PMI) rose to 49.2 from 47.2 in March, the highest reading in six months. New business volumes saw a marginal increase for the first time since November 2024, though international sales continued to fall. Despite the overall contraction, firms increased staffing levels for the first time in three months, albeit marginally, to manage workloads. Confidence in the sector reached an 18-month high, with firms hopeful that the trend in new orders will be sustained.
This article is for informational purposes only and does not constitute investment advice.
