Canada's factory sector contracted in December at its steepest pace since the early months of the COVID-19 pandemic as the rising cost of manufactured goods crimped demand, data showed on Tuesday. The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to a seasonally adjusted 45.4 in December from 47.7 in November, its lowest level since May 2020.

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A reading below 50 indicates contraction in the sector. The PMI has been below that threshold since May, which is the longest such stretch in data going back to October 2010.

"Canada's manufacturing economy endured a difficult end to 2023 and with that rounded off a challenging year for the sector overall," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

"Accelerated declines in both production and new orders were registered, amid reports that demand for manufactured goods remains subdued."

The output index fell to 45.4 from 46.1 in November and the new orders index was at 42.5, down from 45.4. New export orders also declined more sharply, the data showed.

The measure of employment moved back into contraction territory and prices rose, but the pace of price increases decelerated which could be one potential bright spot heading into 2024.

"Firms noted that clients remain burdened by high prices, and these continued to rise throughout the supply chain over the month, Smith said.

"However, at least rates of inflation eased according to the PMI data, and given the increasingly weak demand environment, are likely to continue to fall in the months ahead."

The input price index was at 54.1, down from 55.6 in November and the output price measure fell to 52.7 from 54.8.