Divergence in manufacturing PMI between the US and Canada! The US briefly recovers while Canada falls into contraction.

In February, the final value of the S&P Global Manufacturing PMI in the United States reached 52.7, higher than the initial value of 51.6 and the January final value of 51.2, indicating an improvement in the health of the manufacturing sector. However, despite production growth reaching its highest level since May 2022, and new orders showing the best performance in a year, the report suggests that this recovery may be temporary. Chief Business Economist Chris Williamson of S&P Global said that the growth in manufacturing is largely being driven by businesses and clients stockpiling inventory before tariff increases, rather than a true resurgence in demand. Additionally, exports have greatly declined and supplier delivery delays are the most severe since October 2022, mainly due to the trade disruptions caused by tariff uncertainty. Although market sentiment towards the outlook for the next year was the most optimistic in nearly three years in January, business confidence significantly dropped in February. More and more businesses are expressing concerns about the tariff policies and other measures implemented by the Trump administration, especially as the inflationary effects of tariffs have significantly increased, leading to a substantial rise in factory input costs in February. These higher costs are being passed on to customers by businesses, causing factory product prices to reach their highest inflation level in two years. Manufacturers are worried that this not only will inhibit sales in the coming months, but may also prompt the Federal Reserve to take more hawkish measures against inflation. In contrast, the manufacturing situation in Canada is more dire. The S&P Global Manufacturing PMI for Canada significantly dropped from 51.6 in January to 47.8 in February, falling below the boom-bust line, indicating a contraction in the manufacturing sector. Surveys showed that due to the uncertainty surrounding the scope and rates of border tariffs between the U.S. and Canada, production in businesses has fallen sharply, new orders have seen a significant decline, and market demand has been severely impacted. Economic Director Paul Smith of S&P Global Market Intelligence stated that due to increased uncertainty about the future, confidence among Canadian manufacturers has dropped to its lowest level since April 2020. Businesses are adopting more cautious purchasing and hiring strategies, and in February, they reduced both the quantity of purchases and the number of employees. Furthermore, another major challenge facing the Canadian manufacturing sector is the acceleration of input cost inflation. In February, the rate of increase in input costs for Canadian factories reached its highest level since April 2023, partly due to the strengthening U.S. dollar pushing up import costs, as well as some suppliers raising prices before potential tariff adjustments in the future. These factors are exacerbating pressure on the Canadian manufacturing sector, making its outlook even bleaker.