Preliminary retail and manufacturing sales for March next week Friday will offer early, but important clues on how the Canadian economy has fared under U.S. tariffs.
Measures in place included 25% blanket tariffs on U.S. imports from Canada briefly in effect on March 4th before being rolled back to just non-USMCA compliant trade days later, and an additional 25% tariffs on Canadian steel and aluminum products from March 12. Canada retaliated with 25% tariffs on $60 billion worth of U.S. imports as well. Tariffs and counter tariffs on finished autos were added in April.
March is also when tariff-related uncertainty pushed consumer sentiment to its lowest level in history. However, early “hard” data into April has been more resilient. Restaurant bookings were still running 20% above year-ago levels, according to OpenTable. Job losses in March reversed some earlier gains, but data on job openings from indeed.com are still well above lows in late last year including in the heavily trade-sensitive manufacturing sector.
On Friday’s Canadian retail sales data, RBC’s tracking of consumer spending has suggested a more gradual softening so far in line with Statistics Canada’s preliminary estimates that February retail sales edged 0.4% lower. But, the advance estimate for sales in March could look stronger. Auto sales surged by 8% on a seasonally adjusted basis from February to March by our count, likely due to tariff front-loading and our own tracking of card transactions remained relatively resilient.
We still don’t see current tariffs on Canada from the U.S. (with an average 3.6% tariff rate) as severe enough to plunge the economy into a recession. The tariff hike on Canada is now the lowest among countries after the U.S. imposed minimum 10% tariffs on all countries and exempted CUSMA-compliant trade from Canada and Mexico this month.
Downside risks that a much softer U.S. outlook this year could spill over to Canada are growing. But, Bank of Canada interest rate cuts over the last year are still filtering through to support the economy with a lag. And, there is room for fiscal policy to ramp up to support the economy should it soften more significantly than we expect. For now, we expect current tariffs on Canada remain, driving gross domestic product growth slower and unemployment higher in Canada this year.
Week ahead data watch
Job openings in Canadian SEPH data out on Thursday will be watched closely for further evidence that hiring demand was slowing in February. Earlier-reported labour market data already showed employment growth stalling in February and declining outright by 30k in March. Job postings on indeed.com softened in February and March, but showed some signs of stabilizing at levels still well above the lows of late last year early in April.
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