By Fergal Smith
TORONTO (Reuters) - Canadian manufacturing activity moved closer to stabilization in August as production and new orders fell at slower rates, but a decline in employment underscored an uncertain outlook and cost pressures rose to a 16-month high, data showed on Tuesday.
The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) increased to 49.5 in August, its highest level since March, from 47.8 in July.
Still, it was the 16th 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 indicates contraction in the sector.
Slower declines in output and new orders provide "some hope of the sector heading towards stabilisation after a prolonged downturn," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.
The output index rose to 47.8 from 45.9 in July and the new orders measure was at 48.5, up from 45.1. In contrast, the employment index fell to its lowest level this year at 48.8, down from 50.3.
"Reduced employment and cuts in purchasing activity point to continued uncertainty amongst firms, and this was reflected in their assessment of the outlook, with confidence remaining below its trend level," Smith said.
"Firms continue to worry about price levels, and in this regard the latest data on inflation remained concerning."
The input price index rose to 55.8, its highest level since April 2023, as firms noted unfavorable exchange rates and higher shipping costs, while the output price index was at 54.0, up from 50.9.
The Canadian dollar weakened to near a two-year low at 1.3946 per U.S. dollar, or 71.71 U.S. cents, in August but has since rebounded to about 1.3475.