A new BMO report suggests Canadians are weathering the storm despite huge economic uncertainty
Canadian households are poised to help sustain the economy this year despite ongoing headwinds from the US trade war, according to a new report from BMO Economics. The analysis, authored by BMO chief economist Doug Porter and senior economist Sal Guatieri, suggests consumers are spending steadily enough to offset some of the weakness in business investment and exports.
The report noted that while the trade conflict has weighed heavily on sectors such as autos, steel, and aluminum, as well as manufacturing regions like Hamilton, Sept-Îles, Oshawa, Cambridge, and Windsor, most households have not felt its impact. Early estimates show June retail sales posted the largest monthly gain of 2025, rising 1.6%. Year-over-year, volumes climbed 3.7%, and more than 5% when excluding gasoline sales.
A slowdown in immigration – particularly among temporary residents, who typically spend less than permanent residents – has reduced Canada’s population growth from 3.2% in early 2024 to 1.2% in the second quarter. However, this has helped boost per capita spending, with real personal consumption estimated to have grown 3% year-over-year in Q2, faster than the decade-long average.
BMO economists attribute this resilience to a relatively stable labour market. Job growth was still up 1.5% year-over-year in July, and most of the rise in the unemployment rate since 2022 stemmed from rapid population growth rather than widespread layoffs. Household income rose 6.6% in the first quarter, bolstered by continued employment and lower personal income taxes introduced in July.
The “Buy Canada” movement has also provided a lift. Travel to the US by Canadians has dropped by one-third so far in 2025. If redirected domestically, this could add roughly $9 billion to annual spending, equivalent to 0.3% of GDP.
Financial positions have improved as well. Net household financial assets rose 9% year-over-year in Q1 and are projected to increase nearly 20% in Q2, supported by strong equity markets. Lower interest rates have eased mortgage payment increases for those renewing fixed-rate loans, with the Bank of Canada estimating average hikes of 15% to 20%, compared with more than 30% in 2023.
Still, the report acknowledged signs of strain. Mortgage and consumer loan arrears have edged higher, and insolvencies have returned to pre-pandemic levels. “Despite the harmful trade war and lingering financial strains, Canadian households appear well positioned to keep spending,” the economists wrote, adding that this should help cushion the economic slowdown and support a recovery later in the year.
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