Canadian Manufacturing Activity Slows Amid Tariffs, Export Orders Rise

January's S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) declined to 51.6 from 52.2, indicating slower growth in manufacturing. Despite a decline in confidence due to looming U.S. tariffs, export orders experienced their first increase in 17 months.

Impact of Tariffs

The impending tariffs from the U.S. have created uncertainty in the Canadian manufacturing sector, with some firms raising output to address potential tariff impacts. However, concerns over a trade war are growing due to the significant uncertainty they introduce.

Export Orders Increase

The new export orders index reached 50.3, its first rise above 50 since August 2023. Clients are reportedly placing orders ahead of potential tariffs, driving this increase in export activity.

Other Key Indicators

Output activity declined slightly, with the output index falling from 53.0 to 52.3. A weaker loonie against the dollar led to higher material costs, contributing to an increase in the input price index. Additionally, the measure of future output fell to 57.1, its lowest point since July.

Bank of Canada Response

Amidst concerns about tariffs fueling inflation, the Bank of Canada recently reduced interest rates by 25 basis points to 3%.