S&P Global reported that Canada’s manufacturing sector expanded for the first time in 12 months. Manufacturing activity had contracted for 11 consecutive months as U.S. tariffs hindered activity in key Canadian sectors, such as lumber, automotive, aluminum and steel. January was a pleasant surprise, suggesting that manufacturing activity could be picking up, which will help Canada’s overall economic activity. That would be a positive start to 2026 after data from Statistics Canada (StatsCan) on Friday showed that Canada’s economy may have contracted in the fourth quarter of 2025.

• The S&P Global Canada Manufacturing Purchasing Managers Index moved higher to 50.4 in January from 48.6 in the previous month, marking its first expansion since the beginning of 2025 before tariffs were imposed. For the previous 11 months, Canada’s manufacturing industry was hurt by falling output and new orders.
• Stable output contributed to January’s expansion. Amid stable output and hopes for better conditions ahead, employment at manufacturers increased, which was its first increase in 12 months.
• New orders continued to contract but at a slower pace in January over December.
• Last Friday, feelings about the economy erred towards cautiousness. StatsCan reported that Canada’s gross domestic product growth stalled in November (0.0% growth). Stronger services sector activity was offset by weakness in the goods-producing industries.
• StatsCan estimated that Canada’s economy may have risen by 0.1% in December. After the sharp fall in October, data is pointing to a potential contraction over the final quarter of 2025.

Last Friday, Canadian equities sank in part due to the sharp fall in precious metals and concerns over the Canadian economy. However, yesterday’s manufacturing report offers some hope this key sector of Canada’s economy may be improving, despite ongoing trade tensions with the US. Economic activity has been relatively shaky but resilient, helping Canada’s economy avoid a recession, which was once feared in 2025 to occur.

If you would like to discuss this economic and market update or have questions about your finances and investments, please feel free to contact me anytime.