By Fergal Smith
TORONTO (Reuters) - Contraction in Canada's service sector deepened in October as inflation and higher borrowing costs weighed on new business activity, data from the first public release of the S&P Global (NYSE:SPGI) Canada services PMI showed on Friday.
The headline business activity index fell to 46.6 in October from 47.8 in September, its lowest level since a matching 46.6 in August 2022. A reading below 50 indicates contraction in the sector.
The data "showed that the nation's vast services economy, the key contributor to overall economic output in Canada, remained mired in contraction territory during October," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.
"Moreover, operating conditions faced by service providers are worsening at a greater pace, with both activity and new business declining to their greatest degrees since August 2022."
The new business index fell to 47.6 from 48.7 in September, pressured by increases in the cost of living and interest rates.
The Bank of Canada has raised its benchmark rate to a 22-year high of 5% to tackle inflation, which has been fueled in part by a tight labor market.
The employment index dipped but remained above the 50.0 no-change mark for a second straight month as firms made efforts to fill long-held vacancies with suitably qualified staff. The need to pay higher wages added to cost pressures.
The measure of input price inflation rose to 62.5, its highest level since a matching 62.5 in July.
The S&P Global Canada Composite PMI Output Index, which captures manufacturing as well as service sector activity, was also at its lowest level since August 2022, falling to 46.7 from 47.4 in September.
On Wednesday, data showed that Canada's manufacturing PMI rose in October for the first time in three months but remained below the 50 threshold.