Canadian consumer confidence plunges amid US tariff concerns - Trade Treasury Payments

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Canadian consumer confidence plunges amid US tariff concerns

Canadian consumer confidence has taken a sharp hit, reaching its lowest level in more than a year as fears of a trade dispute with the United States weigh on sentiment. According to the Conference Board of Canada, the Index of Consumer Confidence fell by over 12 points in February to 52.6 – its steepest monthly drop in 18 months.

The decline comes as concerns mount over potential tariffs on Canadian goods, particularly in manufacturing sectors heavily reliant on exports to the US.

The latest reading marks the lowest consumer confidence level since November 2023, when the index hit 51.5, and is a far cry from pre-pandemic levels that often hovered above 100 points. The index, which gauges Canadians’ outlook on the economy, personal finances, and job prospects, has remained below 80 for several years.

Job security concerns drive pessimism

One of the key drivers behind the decline is growing anxiety about employment prospects. More than a third (33.9%) of Canadians reported that their personal financial situation has worsened over the past month, an increase of 2.7 percentage points.

The uncertainty surrounding US trade policy is particularly unsettling for workers in manufacturing-heavy provinces like Ontario and Quebec. For factories that regularly export goods to the US, Trump’s impending tariffs could have a short-term impact on production levels and, subsequently, employment needs. 

The survey, conducted in partnership with Leger, does not ask respondents to specify the reasons behind their outlook, but analysts anticipate that trade tensions are likely a major factor.

Impact on spending and the economy

As consumer confidence dips, spending patterns are also shifting. Nearly 63% of respondents now believe it is a bad time to make major purchases such as a home or car. This hesitancy could have ripple effects on sectors that were expected to benefit from an economic rebound in 2025.

Canadians who are concerned about their immediate job security are also less likely to participate in discretionary spending. This will have a ripple effect even on domestic businesses, such as restaurants or recreation centres, as more of their customers begin tightening their belts.

The latest downturn in confidence comes despite some positive economic indicators, including stabilising inflation and falling interest rates. However, if tariffs are enacted, the Conference Board warns that Canada could face both an economic slowdown and a renewed cost-of-living crisis.

The effects are not limited to Canada. The US consumer confidence index also recorded a sharp decline in February, dropping by seven points to 98.3—its steepest monthly fall in over four years.

Uncertainty looms over tariff decisions

The timing of the survey coincides with US President Donald Trump’s decision to temporarily pause broad tariffs on Canadian imports. However, the reprieve may be short-lived. Trump has signalled that a decision on sweeping trade measures is on schedule for early March, with 25% tariffs on Canadian steel and aluminium already scheduled to take effect on 12 March.

Should Canadian officials successfully negotiate exemptions or alternative trade agreements, consumer confidence could recover. Until then, many Canadians appear to be tightening their belts, waiting to see how trade tensions unfold.