By Robb M. Stewart
Activity in Canada's services industry picked up slightly last month despite a fall in new business and ongoing economic uncertainty, data released Wednesday showed.
The S&P Global Canada services purchasing managers index rose to 50.6 in May. That marked the first time since October that the index was above the 50 threshold separating contraction from expansion after advancing to 49.2 in April.
The pickup in growth overall was limited by a marginal drop in fresh business volumes, following a modest rise the month before.
Companies polled by S&P Global reported a challenging backdrop of uncertainty was weighing on sales and sentiment, and sparked a dip in industry employment.
"Canada's service sector experienced a net rise in activity during May, but growth was fragile and masked a challenging business environment," said Paul Smith, economics director at S&P Global Market Intelligence.
Manufacturing activity in Canada softened slightly in May, with S&P Global's purchasing managers index for the sector cooling to 52.9, though that marked a second month in a row in expansion territory.
Canada's economy saw a muted contraction in the first quarter of the year, with gross domestic product dipping 0.1% on an annualized basis, as imports were buoyed by the elevated price of gold and business and government investment fell. That built on a 1% contraction in the final quarter of last year, when there was a sharp draw-down in business inventories.
S&P Global's services survey showed worries over the conflict in the Middle East in particular were weighing on the sector. New export business was down in May, though to the softest degree since July 2024 and by less that was generally seen last year and early in 2026, S&P Global said.
It said service providers' confidence in the outlook was also adversely impacted by geopolitical uncertainty, especially in relation to tariffs and the Iran war, with sentiment regarding future activity falling to its lowest level in four months despite some hopes of a stabilization in sales in the coming year.
"Cost pressures are lifting steeply higher, with firms not only reporting sharply rising fuel prices but also higher wage expenses. That will raise red flags for policymakers who will be alert to the emergence of second-round price effects, though they will perhaps be assuaged by the fact that, despite picking up to a near three-year high, output price inflation remains well below that of input costs and has not shown to date anywhere near the same degree of acceleration," Smith said.
Service companies reduced employment numbers for the eighth month in the last nine, though the decline was modest and providers reported being able to keep on top of workloads as outstanding business fell, S&P Global said.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
06-03-26 1009ET
