Our summary of recent economic events and what to expect in the weeks ahead.
Canadian Highlights
- The U.S. delayed planned 50% tariffs on select Canadian goods by three days, providing brief breathing room as trade talks between the two countries continue.
- Canada’s economy grew a much stronger-than-expected 3.3% annualized in Q2, with broad-based strength across exports, business investment, and consumer spending.
- Resilient Q2 growth reinforces our view that the Bank of Canada will likely hold rates steady at its September meeting, even as trade uncertainty lingers.
U.S. Highlights
- Equity markets closed the week at fresh record highs, supported by resilient economic data and strong corporate earnings.
- The Conference Board’s Leading Economic Index fell for a fifth straight month, though the pace of decline continued to slow.
- Housing data showed tentative signs of stabilization, with both new and existing home sales posting modest gains in July.
Canada – GDP Delivers a Goldilocks Surprise
As it happens the reprieve was well timed for markets, if not the Canadian economy, with today’s release of Q2 GDP data confirming that a 50% tariff was applied to less than 5% of goods trade with the U.S. That’s a modest share of trade, but the 3-day reprieve nonetheless offers useful, albeit brief, breathing room as both sides continue working toward what would ideally be a broader and more durable agreement.
Indeed, this week’s Q2 GDP data confirmed just how resilient the Canadian economy has been despite ongoing trade uncertainty, growing by a much stronger-than-expected 3.3% annualized in the second quarter (Chart 1). The upside surprise was broad-based, with strength in exports, business investment, and household spending, alongside a moderate drawdown in inventories. Outsized growth in business investment was particularly notable, jumping 12.7% annualized on the back of a rebound in machinery & equipment spending, alongside continued growth in non-residential structures investment. This pickup in investment aligns with a broader signal from the Bank of Canada’s Business Outlook Survey, which showed businesses growing more comfortable with capital spending plans, even as trade uncertainty lingers. On net, this Goldilocks GDP report supports our view that the economy has weathered the trade shock better than feared, and that the Bank of Canada will likely remain on hold at its next meeting in September.
Consumer spending was also a bright spot, rising 4.6% annualized – the fastest pace since late 2023 (Chart 2). This defied expectations for a slowdown following the unwind of the tax rebate boost from Q1, and instead pointed to still-resilient household demand. Purchases of durable goods like vehicles led the charge, up 10.8% annualized, alongside solid growth in services spending. This resilience aligns with recent retail sales data, which showed another solid gain in June, even as high-frequency indicators pointed to some cooling in July.
While the strength in Q2 spending is encouraging, the outlook for household demand remains somewhat uncertain. Softer labour market conditions and elevated household debt levels could act as headwinds to spending in the back half of the year. That said, today’s data suggest that consumers, alongside businesses, have shown notable resilience in the face of ongoing trade uncertainty.
The recent flurry of trade headlines will remain in focus as markets look for further signs of progress or setbacks in Canada-U.S. trade talks. With the reprieve now in place, all eyes will turn to whether a more substantive agreement can be reached before the new deadline arrives.
Marc Ercolao, Economist
U.S. – Markets Hit Record Highs Amid Resilient Data
Markets continued their upward march this week, buoyed by a resilient economic outlook, better-than-expected earnings, and growing anticipation of Fed Chair Warsh’s remarks at the Jackson Hole Symposium. The S&P 500 and Nasdaq both notched fresh record highs, up 0.3% and 0.5% respectively for the week, while the small-cap focused Russell 2000 surged 2.1%, buoyed by increased expectations of Fed rate cuts filtering through to smaller, more rate-sensitive firms.
This risk-on tone has been driven in part by data showing a continued moderation in U.S. economic growth, without signalling a sharp deterioration – often referred to as a “soft landing.” This week’s data releases reinforced this narrative. The Conference Board’s Leading Economic Index (LEI) fell 0.1% in July, marking its fifth consecutive month of decline (Chart 1). However, the pace of contraction has slowed meaningfully compared to earlier in the year, suggesting economic momentum, while cooling, remains intact. The share of LEI components in expansion also picked up to 50%, the highest level in nearly a year.
Housing data also pointed to a similar story of cautious stabilization. New home sales rose 4.2% in July, reversing a chunk of the prior month’s steep decline, while existing home sales edged up 1.5% – modest but welcome signs of life in an otherwise sluggish housing market (Chart 2). Much of the resilience appears to stem from a modest pickup in mortgage activity, spurred by a small pullback in mortgage rates, alongside continued builder incentives that have helped offset persistently high borrowing costs. Still, affordability challenges remain a significant hurdle, and the housing sector’s overall trajectory remains fragile.
Meanwhile, robust corporate earnings continue to support the resilient growth narrative. With roughly 90% of S&P 500 companies having reported for the second quarter, blended earnings growth has come in at a stellar 12% year-over-year, comfortably beating expectations of around 5% heading into the season. This marks the fourth consecutive quarter of double-digit profit growth, reinforcing the view that corporate America remains in a strong position, even as macro uncertainty simmers in the background.
All told, this week’s data continue to support the market’s preferred narrative: growth is cooling, but not collapsing, and earnings remain a pillar of strength. As we move toward the Jackson Hole Symposium, all eyes will be on Chair Warsh for clues on the Fed’s next move, particularly considering how resilient the economy has been in the face of still elevated interest rates.
