‘Recession risks alive’ as Canada’s manufacturing numbers suffer under Trump tariff regime

The economic data questions the Bank of Canada’s recent decision to hold interest rates for a second consecutive time

The dampening effect of Donald Trump’s tariffs on manufacturing and wholesale sales in Canada is leading economists to warn that growth forecasts are in jeopardy and, even worse, that the numbers could portend the start of a recession.

Manufacturing and wholesale sales, excluding petroleum, dropped 2.8 per cent and 2.3 per cent, respectively, in April from March, according to Statistics Canada data released on Friday. Analysts surveyed by Bloomberg had expected manufacturing sales to drop two per cent and wholesale sales to fall 0.9 per cent.

“Feedback from respondents highlighted the impact of the recent tariffs imposed by the United States on Canada’s manufacturing sector,” Statistics Canada said in a press release.

Manufacturers said they were experiencing price increases as well as rising costs for raw materials, shipping and labour. One-third said demand for their products had changed.

Trump’s tariffs include 25 per cent duties on goods that are non-compliant with the Canada-U.S.-Mexico Agreement, 25 per cent on foreign-made vehicles and 50 per cent on steel and aluminum.

Economists said the sales data put gross domestic product (GDP) forecasts in the crosshairs.

“The implications for April and second-quarter GDP are squarely negative and recession risks are alive and well,” David Rosenberg, economist and founder of Rosenberg Research & Associates Inc., said in a note.

Andrew Grantham, an economist at CIBC Capital Markets, said the data suggests that GDP growth for April will be downgraded from a “surprisingly positive” first estimate of 0.1 per cent, and could be the prelude for second-quarter growth “tracking flat.”

First-quarter GDP growth came in at 2.2 per cent, well ahead of estimates for 1.7 per cent.

On the manufacturing front, petroleum and coal, vehicle sales and primary metals, such as aluminum, contributed the most to April’s decline.

Excluding petroleum and coal, manufacturing sales fell 1.8 per cent in April from March and are down 2.7 per cent year over year.

“Adding insult to injury was the 6.8 per cent month-over-month contraction in new manufacturing orders,” Rosenberg said.

Orders have fallen in two of the past three months, he said, adding that orders for “big-ticket durable goods” shrivelled 10.5 per cent in April, “the sharpest slippage in nearly three years.”

Rosenberg said this data is “key because new orders are, after all, a leading indicator and the mother’s milk for future demand.”

On the wholesale front, sales fell in six of the seven subsections, accounting for 81.6 per cent of the total.

Motor vehicles and parts led the decrease in April, falling 6.5 per cent, a U-turn from March, Statistics Canada said.

As the tariff war got underway, Ontario and Quebec were singled out as being among the provinces most vulnerable to Trump’s tariffs, something the latest manufacturing and wholesale data supported.