Canadian factory PMI falls to seven-month low in July

By Fergal Smith

TORONTO (Reuters) - Canadian manufacturing activity slowed to its weakest level this year in July as production and new orders fell at sharper rates, extending a record-setting run of contraction for the sector, data showed on Thursday.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to 47.8 in July from 49.3 in June, posting its lowest level since December.

It was the 15th straight month the PMI was below the 50.0 no-change mark, the longest such stretch in data going back to October 2010. A reading below 50 marks contraction in the sector.

"The latest manufacturing data disappointed in July, with accelerated declines in both output and new orders both recorded as we enter the second half of 2024," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

The output index dropped to 45.9 from 49.7 in June and the new orders index was at 45.1, down from 48.2, as high inflation, geopolitical tensions and shipping challenges contributed to an uncertain operating environment.

There was an even sharper decline in the measure of new export orders. It fell to 43.5, the lowest level since May 2020.

Employment was a bright spot, edging up to 50.3 from 49.2 in June but the future output index, a measure of sentiment, tumbled to a more-than four-year low at 56.7, down from 60.1.

"Although employment growth was sustained, this was on the back of what looks like dwindling hopes for future output growth," Smith said.

"It seems that the Bank of Canada's recently announced second cut in interest rates could not have come soon enough as firms look to lower borrowing costs and reduced inflation to help reinvigorate demand in the coming months."

The Bank of Canada last week cut its benchmark interest rate for a second time since June, lowering it to 4.50%.

Analysts say the central bank is shifting its focus to boosting the economy rather than suppressing inflation, which raises prospects of further easing as soon as the next policy decision in September.

(Reporting by Fergal Smith; Editing by Chizu Nomiyama)