Canada's services PMI shows activity shrinking in January

By Fergal Smith

TORONTO (Reuters) - Canada's services economy deteriorated for the second straight month in January as uncertainty generated by the threat of U.S. trade tariffs offset lower borrowing costs, S&P Global's Canada services PMI data showed on Wednesday.

The headline Business Activity Index rose to 49.0 from 48.2 in December but remained below the 50.0 no-change mark. A reading below 50 shows a contraction in activity.

"Panellists continued to note soft underlying market demand, with uncertainty weighing on business decisions," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

"Whilst firms are looking to lower interest rates to help stimulate growth, tariff worries ensured that confidence amongst panellists remained well below trend."

U.S. President Donald Trump suspended his threat of steep tariffs on Mexico and Canada on Monday, agreeing to a 30-day pause in return for concessions on border and crime enforcement with the two neighboring countries.

To support the economy, the Bank of Canada last Wednesday cut its benchmark interest rate by a further 25 basis points to 3%.

The New Business Index was also below 50 for a second straight month, while the employment measure slipped into contraction for the first time since September.

The measure of future activity was at 60.9, up from 60.1 in December, but below the 64.4 average since the first reading in December 2017.

The S&P Global Canada Composite PMI Output Index edged up to 49.5 from 49.0 in December, held back by the deterioration in the service sector.

Data on Monday showed that Canada's manufacturing PMI fell to 51.6 in January from 52.2 in December.

(Reporting by Fergal Smith; Editing by Chizu Nomiyama)