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

By Fergal Smith

TORONTO (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%.

(Reporting by Fergal Smith; Editing by Chizu Nomiyama)