UPDATE 1-Canada's Ivey purchasing index shrinks in June for second month

Mon Jul 7, 2014 10:52am EDT

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TORONTO, July 7 (Reuters) - The pace of purchasing activity in Canada shrank further in June, falling to the lowest level in six months and frustrating expectations for a pickup in growth, the Ivey Purchasing Managers Index showed on Monday.

The seasonally adjusted index fell to 46.9 from 48.2 in May, short of expectations for 52.5 and the weakest level since December. A reading below 50 indicates a decrease in the pace of activity.

The unadjusted index also decreased to 49.7 from 52.2.

The data took some shine off the Canadian dollar, which reversed earlier gains to trade modestly weaker at C$1.0677 against the U.S. dollar.

The adjusted measure of employment fell to 45.6 from 48, potentially boding poorly for June's more comprehensive unemployment report due at the end of the week.

The inventories and deliveries indexes both continued to contract, while the measure of prices slipped to its lowest level since last July.

The report was in contrast to the RBC Canadian Manufacturing Purchasing Managers' index, released last week, which showed the pace of growth in Canadian manufacturing picked up in June to its highest level of the year so far.

TD Securities said it was inclined to put more weight on the RBC report.

"If the United States economy is able to sustain the momentum from the forecast bounce in the second quarter over the second half of the year, the outlook should continue to brighten for Canadian manufacturers," David Tulk, TD Securities' chief Canada macro strategist, wrote in a note.

"Taken in tandem with the expected depreciation in the Canadian dollar, greater confidence and stronger foreign demand will help generate the rotation in growth away from domestic demand that lies at the core of the Bank of Canada's outlook," he wrote. (Reporting by Leah Schnurr; Editing by Chizu Nomiyama; and Peter Galloway)

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