June 7, 2012 / 2:09 PM / in 6 years

Canada's Ivey PMI index surges in May

TORONTO (Reuters) - The pace of purchasing activity in the Canadian economy rose sharply in May from April, the Ivey Purchasing Managers Index showed on Thursday, but a subindex signaled a steep drop in business employment levels.

The seasonally adjusted index rose to 60.5 in May from 52.7 in April. Analysts polled by Reuters had forecast a reading of 55.

Any index reading above 50 indicates that activity increased from the preceding month. The May number was the strongest since February’s reading of 63.5, but was off January’s 66.5 reading and December’s 64.1.

“While the rise in the headline index was encouraging, greater focus will be placed on the sharp drop in the employment index,” Mazen Issa, Canada macro strategist at TD Securities, said in a research note.

“Given the volatility of this index, we would place greater stock in other manufacturing surveys which suggest that employment in this sector was more constructive than the Ivey PMI would imply.”

Ivey’s employment index fell to 46.3 in May, the lowest level since February 2010, from 52.2 in April.

A separate PMI report released last week by Royal Bank of Canada (RY.TO) showed Canadian manufacturing activity increased in May at the fastest pace in eight months as businesses ramped up production and hiring to cope with rising demand from customers in the United States and Asia.

The RBC report came after recent Statistics Canada numbers showed the Canadian economy had a two-month mini-boom in job creation in March and April.

“This soft labor market news (Ivey PMI) puts more focus now on tomorrow’s official Canadian employment number,” Jonathan Basile, an economist at CreditSuisse, said in a research note. “It also reinforces our call for a decline in May jobs after a near-record two-month stretch.”

The market is anticipating Friday’s employment figures won’t match the outsized job gains in the previous two months, which averaged almost 72,000 a month. The median forecast in a Reuters survey of economists is for a gain of 10,000.

The Ivey PMI also showed inventories slipped to 51.1 in May from 56.8 the previous month and supplier deliveries edged down to 47.9 from 49.3 in April.

Recent data showed Canada’s economy grew 1.9 percent in the first quarter on an annualized basis, below the Bank of Canada’s forecast of 2.5 percent growth.

The Ivey PMI’s unadjusted index surged to 66.3 in May from 52.2 a month earlier, its highest level in 11 months.

Editing by Peter Galloway

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