Weekly Economics Report - Feb. 3, 2025

Canadian factory PMI dips in January as trade war risk dents confidence



TORONTO, Feb 3 (Reuters) - Canadian manufacturing activity increased at a slower pace in January as looming U.S. trade tariffs reduced confidence in the outlook, even as moves by clients to get ahead of the taxes led to the first increase in export orders in 17 months.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to 51.6 in January from 52.2 in December. Still, it was the fifth straight month above the 50.0 no-change mark. A reading above 50 indicates expansion in the sector.

U.S. President Donald Trump on Saturday ordered sweeping tariffs of 25% on goods from Mexico and Canada, demanding they stanch the flow of fentanyl and illegal immigrants. Canadian Prime Minister Justin Trudeau said Canada would respond with 25% tariffs against $155 billion of U.S. goods, including beer, wine, lumber and appliances.

“January’s survey highlighted the complex impact that possible U.S. tariffs are presently having on the Canadian manufacturing economy," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

Canada sends about 75% of its exports to the United States. The new export orders index rose to 50.3, its first move above the 50 threshold since August 2023.

"Firms noted that clients in some instances were bringing forward their orders to get ahead of these potential tariffs, and output amongst manufacturers was being raised in response," Smith said. “However, the threat of tariffs from the U.S. is leading to a huge amount of uncertainty in product markets, and firms are growing increasingly concerned about a potential trade war with a key trading partner."

The output index fell to 52.3 from 53.0 in December and the measure of future output was at 57.1, its lowest level since July.

A stronger U.S. dollar, which jumped on Monday to a 22-year high against its Canadian counterpart, contributed to increased material costs, S&P Global said.

The input price index rose to 58.3, its highest level since April 2023, while the output price index was at 53.5, up from 52.3 in December. Last week, the Bank of Canada said it was concerned that U.S. tariffs could stoke persistently high inflation as it cut interest rates by 25 basis points to 3%.

MONTHLY CONSTRUCTION SPENDING, DECEMBER 2024

February 3, 2025 — The U.S. Census Bureau announced the following value put in place construction statistics for December 2024:

Total Construction spending during December 2024 was estimated at a seasonally adjusted annual rate of $2,192.2 billion, 0.5 percent (± 0.8 percent)* above the revised November estimate of $2,180.3 billion. The December figure is 4.3 percent (±1.3 percent) above the December 2023 estimate of $2,101.3 billion. The value of construction in 2024 was $2,154.4 billion, 6.5 percent (±1.0 percent) above the $2,023.7 billion spent in 2023.

Source: US Census Bureau

China factory activity growth slows in January, Caixin PMI shows



BEIJING, Feb 3 (Reuters) - China's factory activity grew at a slower pace in January, while staffing levels fell at the quickest pace in nearly five years as trade uncertainties increased, a private-sector business survey showed on Monday.

The Caixin/S&P Global manufacturing PMI slipped to 50.1 in January from 50.5 the previous month, missing analysts' forecasts in a Reuters poll of 50.5 and easing to a four-month low. But it just exceeded the 50-mark that separates growth from contraction.

Still, the reading was better than an official survey last week, which showed manufacturing activity unexpectedly contracted at the start of 2025, keeping alive calls for more stimulus in the world's second-largest economy. The smaller Caixin survey is believed to focus more on export-oriented companies.

According to the Caixin survey, manufacturing production accelerated in January from December, while total new orders increased at the quickest pace since November. Factory owners reported improved demand and anecdotal evidence suggested that some clients had ramped up orders for stockpiling purposes.

In the face of U.S. President Donald Trump's tariff threats, anecdotal evidence suggested exporters rushed to load cargoes at a major Chinese port before the eight-day Lunar New Year holiday and ahead of any new tariffs. Trump on Saturday ordered 10% tariffs on goods from China and larger levies on Canadian and Mexican imports, risking a new trade war that economists say could slow global growth and reignite inflation.

The Caixin survey showed January new orders from abroad declined for a second straight month. And factories' average selling prices declined at fastest pace since July 2023, reflecting pressure to support sales and market share amid rising competition and global uncertainties.

Still manufacturers' sentiment improved on signs of improving domestic demand and expectations of more government support measures for the economy. Employment usually eases as factories tend to shut temporarily over the long Lunar New Year holiday. But January's job shedding rate speeded up to the fastest since February 2020.

According to manufacturers, the fall in employment levels reflected the non-replacement of job leavers and redundancies due to cost concerns.

Nonethless, the reduction in staffing levels and rising new orders led to a fourth monthly accumulation of backlogged work in the manufacturing sector.

“Rising uncertainty in international policies could worsen China’s export environment, posing significant challenges for the economy,” said Wang Zhe, economist at Caixin Insight Group. Economic policies hence ”must be well-prepared and adjusted promptly” to adapt to evolving circumstances, he added.