By Fergal Smith
TORONTO (Reuters) - Canada's manufacturing sector contracted for the third straight month in July as an uncertain economic outlook held back new orders, offsetting a pickup in production, data showed on Tuesday.
The S&P Global (NYSE:SPGI) Canada Manufacturing Purchasing Managers' Index (PMI) rose to a seasonally adjusted 49.6 in July from 48.8 in June. A reading below 50 indicates contraction in the sector. It has been below that level since May.
"July's PMI results offered a rather mixed bag on the performance of the Canadian manufacturing sector," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.
"There was a welcome return to output growth, following two successive months of contraction. However, concurrently there was another, admittedly small, drop in new orders as firms continued to signal a high degree of market uncertainty and reluctance amongst clients to commit to new work."
The new orders index, at 49.2, was in contraction for the fifth straight month, although up from 48.5 in June.
New export orders were a bright spot, expanding for the first time in 14 months, helped by improved demand from the United States, Canada's biggest export market by far.
Output also expanded, rising to 51.1 from 49.7 in June, but employment fell to its lowest level since June 2020 at 48.4, down from 49.4.
The slowdown in factory activity has occurred amid a sharp rise in interest rates - the Bank of Canada raised its policy rate in July to a 22-year high of 5% - and after the economy was buffeted in recent months by Canada's worst-ever spring wildfire season and a dock workers strike at the country's busiest ports.
The port strikes and wildfires limited the improvement in vendor performance, S&P Global said. The suppliers' delivery times index dipped to 50.4 after climbing in June to a survey-record high of 51.8.