Juggling Dynamite

We should all work and hope for new trade relationships, new business lines and lots of innovation to bring seen and unforeseen solutions. But in the here and now, Canada is in a complacency-earned rough patch. Eyes wide open.

Canada’s private-sector activity remained soft in January, with the S&P Global Canada Composite PMI coming in at 46.4, slightly below December’s 46.7. Readings below 50 indicate contraction, and this marks the third consecutive month of subdued economic momentum. While the decline from December was modest, the data suggest ongoing weakness in business activity (ongoing cutbacks) and demand (weak new orders, weakness in interest-sensitive sectors such as construction, real estate and consumer services).

Manufacturing stabilized in January, while services fell to 45.8 from 46.5, with the latter the main driver of the downturn. New business volumes declined for a fourteenth consecutive month and continued to weigh on output. Backlogs of work decreased markedly again as firms were easily able to keep on top of workloads.

On the price front, input cost inflation softened to its softest rise since November 2024, while output charge inflation remained solid and little changed compared with December.

Employment contracted for a fifth successive month, as firms pared staff or chose not to replace those who left. Business confidence softened since December and remained well below trend.

Canada’s full-time job creation flattened over the past three months, along with a contracting workweek, and an unemployment rate at 6.8% in December, up from 6.5% in November. The Bank of Canada’s (BoC’s) January Monetary Policy Report (MPR) affirmed a darkening outlook in 2026:

“US trade policy has weakened demand for Canadian exports and led to heightened uncertainty. As a result, some businesses have postponed expansion plans. This is hampering the economy’s ability to grow…GDP growth remains modest at 1.1% in 2026 and 1.5% in 2027…While US tariffs on Canada are limited to specific sectors, such as steel and aluminum, their impact on exports is being felt more broadly. Uncertainty about trade policy is prompting some US customers to delay orders. As well, many Canadian businesses are postponing expansions, and some are approaching new US contracts with caution. Additionally, establishing new trade relationships with customers and suppliers outside the United States will be a lengthy process…Weak demand and trade policy uncertainty continue to weigh on investment plans for both exporting and non-exporting businesses.”

At the same time, talk of the Bank of Canada (BoC) holding the overnight rate steady while the US is expected to ease further, along with parabolic moves in metals’ prices, caused the loonie to appreciate 3% against the US dollar in the last three months. The question is how long can this strength last.

A stronger loonie is disinflationary for import prices, but has little effect on the shelter and services inflation, which are stressing Canadian households. Meanwhile, trade and labour weakness, along with ongoing strife in the deflating property market, increase the likelihood that the BoC will return to lowering the overnight rate in 2026.

David Rosenberg touches on some key trends in the segment below.

David Rosenberg, founder of Rosenberg Research, joins BNN Bloomberg to discuss Canada’s labour market and real GDP. Here is a direct video link.

Home price deflation is underway in many high-population centers in Canada and America, see Housing Market Is Shifting Back Toward an Advantage for Buyers on the front page of yesterday’s Wall Street Journal: “The proliferation of discounts and incentives offers the latest evidence that the housing market is tilting back in the buyer’s favour.”

The US housing market had over 600k more sellers than buyers in December —the largest such gap on record in seasonally adjusted data going back to 2013 — and 62% of buyers last year purchased a home below the original listing price — the highest proportion since 2019 (Redfin data). The average discount for the homes that sold below their original listing price was around 8% — the largest since 2012.

Existing homeowners tend to be more price-anchored and less willing/able to reduce, but builders are in the business of building and selling homes, not holding them. Builders have been slashing prices and offering incentives (free upgrades, reimbursement of closing costs, mortgage rate buydowns, etc.).

The premium for new over existing US homes has fallen to zero for the first time in at least a decade (shown below since 2015, courtesy of John Burns Research). A downtrend in new-home prices typically pulls resale prices lower as well.Prices are moving lower, but the scale of the bubble that was is still hard for many to appreciate.

Here’s a downtown Toronto condo, purchased for 698K in October 2022, tried selling for 750K in May 2023, then down to 500K by last month, just relisted for 525 K.

Here’s another 2-bed, 2-bath, 1-parking with balcony, nicely updated, last sold in May 2018 for $580k, now asking $499k — 14% lower than it sold for 8 years ago.

And the markdowns are happening far beyond downtown condos.

In December 2020, amid the COVID-19 pandemic, a builder purchased a bungalow in a desirable location, steps from Lake Simcoe, one hour north of Toronto, for $690k (see here). After demolishing the original home, they built a modern two-storey house with all the modern amenities, which was listed for 2.195m in September 2022 (shown below). Unfortunately for the builder, their listing was posted 7 months after Canada’s housing bubble had burst in February 2022.

After two years and five months of markdowns and relistings, the property remains for sale, now asking 1.399m (shown below).

When these properties finally sell, they will serve as comparables for other listings in the area. And with many disgruntled owners taking properties off the market last fall, spring listings are poised to surge.

Canada’s average home sale price was $674K in December 2025 (per CREA data). some 39% higher than $484,500 in 2018 (pre-COVID). To return to historical affordability norms at 3-4 times the average household income (approximately 84K nationally) range, home prices nationally would need to fall below 2018 price levels.

Buyers can prepare by building their downpayments, defining their budget, targeted area and type, and by realizing the magnitude of price bubbles now reversing. Sellers can prepare by being pragmatic and understanding the magnitude of bubbles now bursting.

Mind the hype, always…

Utilities analysts are having a moment as the energy sector gets a boost from AI. With an extra 94 gigawatts forecast to be needed by 2030 to power all these data centers, energy investment has become a hot play as investors take a “picks and shovels” approach. But one long-time utilities analyst says that — from a utilities perspective — we’re already set to overbuild capacity by twice as much is needed. Andy DeVries, head of investment grade credit and head of utilities and power at CreditSights, talks to us about the math behind his infrastructure overbuild analysis, who’s been making money (so far) from the data center boom, and what we already see playing out in the credit markets. Here is a direct video link.