CANADA DATA: PMIs Point To Activity Stabilizing At Weak Levels

Canada August PMIs suggested a service sector-led moderation in economic activity vs July, even if the overall report suggests that activity has stabilized after very negative conditions in Feb-Jun amid US trade war concerns.

• The Composite index ticked down to 48.4, from July's 48.7 which had been a 6-month high. The Services data out Thursday showed a deterioration to 48.6 from what had been an 8-month high 49.3 in July - the previously-released Manufacturing reading showed a 2.2 point improvement to 48.3, a 7-month best.
• Having contracted for 3 consecutive months, monthly GDP by industry rose 0.1% M/M in July per Statcan's flash estimate, a result that is roughly mirrored by the improvement in PMIs the last couple of months. To be sure, this is a recovery from very weak conditions as opposed to a burst of activity going into late summer, particularly for services.
• Indeed the main takeaways from the Services report were not encouraging, with employment a rare positive:
  • "The recent downturn in Canada’s service sector was sustained in August, with activity and new business both continuing to decline. Market conditions remained unfavourable, characterised by uncertainty caused by tariffs. Business confidence also moderated and remained well below trend."
  • On employment: "Companies retained sufficient confidence to add to their staffing levels in August for a fourth successive month, albeit marginally."
  • On tariffs and export orders: "Lower levels of new business continued to weigh on business activity during August. The rate of contraction was similarly sharper, reflecting a combination of limited client budgets and the noticeable uncertainty created by tariffs. New export business was again most notably affected. Latest data showed that new export sales declined to the steepest degree since April amid a widespread reluctance amongst international clients to commit to new contracts."
  • On inflation: "Cost inflation meanwhile softened to a seven-month low but remained strong amid reports of tariff-induced price rises. Output charge inflation similarly softened and was the weakest for four months."