Market Recap: U.S. and Canada

The TSX was the star of the show this week, although it did see its share of volatility. We saw that big selloff mid-week after some mixed economic data came out, with flat retail sales and big jobs revisions definitely impacting the U.S. exchanges. Friday gave us a bit of relief, but at the end of the week only the Canadian market was in the positive.

As for the numbers, the TSX led the way with a gain of 1.91%, while the Dow Jones fell 1.23%, the Nasdaq 100 was down 1.37%, and the S&P 500 fared the worst, dropping 1.39%.

Major Economic Stories

Economic Recap

It was all about U.S. this week numbers, and we saw a release of conflicting data. Inflation cooled more than expected, the labour market showed surprising strength, but consumer spending lost momentum.

Here’s how things played out this week.

Retail Sales Stall As Consumers Pull Back

Retail sales were flat in December, missing expectations for a 0.4% gain and slowing sharply from November’s 0.6% increase.

This is something that’s been brewing for a while now. On the positive side, building materials rose 1.2% and gasoline sales climbed 0.3%, but declines across furniture, clothing, electronics, and auto dealers dragged the headline figure down. Core retail sales used in GDP calculations slipped 0.1%, the first decline in three months. Sales excluding autos and gasoline were also flat, showing broader consumer hesitation.

• Core retail sales fell for first time in three months

• Discretionary categories showed widespread monthly declines

• Auto and furniture spending softened into year-end

• GDP-linked sales measure edged modestly lower

Job Growth Surges But Revisions Weigh

The U.S. economy added 130,000 jobs in January, nearly double expectations and well above December’s revised 48,000 gain.

Health care led with 82,000 new positions, including 50,000 in ambulatory services, while construction added 33,000 jobs. However, 2025 payroll growth was sharply revised lower to 181,000 for the year, implying average monthly gains of just 15,000. Federal government employment dropped by 34,000, and financial activities shed 22,000 jobs.

• Health care hiring drove majority of gains

• Construction employment rebounded solidly in January

• 2025 job growth revised sharply lower overall

• Financial sector employment contracted again

Unemployment Rate Ticks Lower

The unemployment rate dipped to 4.3% from 4.4% as total employment rose by 528,000.

The labour force expanded by 387,000 and the participation rate edged up to 62.5%, so we saw more workers entering the job market. Also, the broader U-6 measure fell to 8.0% from 8.4%. That means fewer discouraged and underemployed workers are looking for jobs. The number of unemployed declined by 141,000 to 7.36 million.

• Labour force participation moved slightly higher

• Broad underemployment measure declined meaningfully

• Total employment rose strongly month over month

• Unemployed population shrank by 141,000

Inflation Cools To Multi-Year Low

Annual inflation slowed to 2.4%, down from 2.7% and below expectations.

Energy prices fell 0.1% as gasoline dropped 7.5%, while used vehicle prices declined 2%. Shelter inflation moderated to 3%, and food inflation eased to 3.1%. Core inflation slipped to 2.5%, the lowest since March 2021, although monthly core prices rose 0.3%, slightly firmer than December.

• Energy prices provided meaningful disinflation boost

• Core inflation reached lowest level since 2021

• Shelter costs continued gradual deceleration trend

• Monthly core reading showed modest firming

TOP INSIGHTS

The Consumer Is Starting To Blink

I think the most important shift this week isn’t in inflation or jobs, it’s in spending. Consumers have been trying so hard to keep spending for the past few months, but in December, retail sales flatlined, and the core measure tied to GDP actually slipped. That tells me households are finally becoming more selective, especially in discretionary categories like furniture, clothing, and electronics.

I’d say Decembers report confirms that households are postponing upgrades, stretching big purchases, and settling for essentials over extras. And, when consumers pull back even slightly, it has a big impact. Consumption drives the majority of economic activity, so even small cracks matter.

Here’s what I’m watching: I want to see whether this turns into a broader slowdown or just a temporary pause. If we see a reversal in inflation, the markets may start pricing in a sharper deceleration.

The Labour Market Looks Stronger Than It Feels

On the face of it, 130,000 new jobs is a pretty solid rebound. The unemployment rate ticked lower, participation improved, and broader underemployment eased. Those are encouraging signals.

But note the massive downward revision to last year’s job growth. When prior gains are revised sharply lower, it changes the narrative. Momentum matters more than one strong month. If underlying hiring was weaker than we thought, the foundation may not be as sturdy as the headline suggests. A steady job market supports confidence, but for policymakers, it complicates rate decisions. We’ll need a few more months of data to help put this more into perspective.

Inflation Relief Is Real But Not Even

As I noted above, U.S. inflation cooled to 2.4% in January, and that’s worth noting. Energy prices helped, shelter costs eased, and core inflation hit its lowest level in years. That’s pretty good progress.

That said, from a household perspective, it would be better if the relief was more even. Gas fell 7.5% and that helped right away, but shelter costs are still elevated and personal care prices accelerated. Families feel the categories they buy most often, not just the headline figure.

As is so often the case, this latest data could mean a more complicated policy path. If we see monthly core readings staying firm while annual figures drift lower due to base effects, central banks are going to need to decide whether progress is real. It’s anything but certain at this point, and the new few inflation readings are going to be very interesting.

TOP STORY
Restaurants Running Out Of Breathing Room

• Rising costs erode already thin margins

• Consumers pull back on dining out

• Operators juggling rent, labour, debt

• Closures increasingly part of the conversation

I’ll kick this story off by admitting that in our household, homemade meals are the norm and restaurant outings are few and far between. So we may be part of a developing problem. The reality is that Canada’s restaurant industry is struggling, and it’s only expected to get worse. Owners are dealing with higher food bills, higher wages, steeper rent and more expensive borrowing costs, all while customers are becoming more cautious about spending. Margins in this business were never generous to begin with, and now many operators say they are simply trying to stay afloat.

Costs Keep Climbing, Customers Push Back

Especially since the Covid-era, menu prices have risen (a lot), but there’s only so far they can go before diners say enough is enough and just start staying home. With households dealing with their own budget pressures, eating out becomes one of the first things to trim. That leaves restaurants absorbing more of the cost increases themselves, and that squeezes profitability from both sides.

More Shakeouts Could Be Ahead

Industry groups are warning that insolvencies will continue to rise if conditions don’t improve. Debt taken on during the pandemic is still being serviced, and interest rates are still at a level higher than many would like, and that’s making that burden heavier. Unless consumer confidence rebounds, more independent operators could be forced to close their doors.

What are your dining habits? Be sure to answer this week’s poll question.

Read the full story here.

As I confess to above, our home is part of the cohort that is contributing to a growing problem. Rising costs and softer consumer confidence are starting to show up in everyday decisions and it’s hurting the restaurant industry. From fewer restaurant visits to more at-home meals, a lot of households are adjusting their habits. How about you? Please vote on this week’s question:

LAST WEEK’S POLL RESULTS

In last week’s poll, I asked whether employers or workers should have the final say on return-to-office mandates. 46% sided with employers, 28% supported a universal approach, and 26% backed workers. It looks like our readers favour flexibility in theory, but lean toward management setting workplace policy. Thanks to everyone who voted.

READER’S COMMENTS

Employers

"A privilege is not a right!" — alain.chung1

"Although workers deserve some flexibility, it is the employer who determines the organization's policy. Especially, the government employees are paid from people's tax money. The government need to show people that their employees are working hard because there is a perception that ‘working’ from home is easy. We don't really know what they are doing at home during work hours. Also, I think the government wants to show that they are doing their part to stimulate economic to some extent by having their employees return to the office." — tochitocchi

"Employers should not automatically be viewed as ‘at fault’ for wanting people back in the office. Many (like those of us in healthcare) have legitimate reasons related to collaboration, culture, skills training, and business strategy. However, if employers fail to explain their reasoning to staff, do not offer flexibility where practical (as with employees with disabilities, for example), or do not respect employee well-being and market trends, then employers' stance can feel out of touch and many workers would argue that's a leadership failure." — ggolea0420

"Let's assume we're talking about a restaurant. Office staff (like assistants or accountants) can easily work from home, but a chef cannot. Since we all demand equality and fair treatment, requiring office staff to return to the office is simply part of ensuring equal rights for every worker.
Just common sense!! " — luismo

Workers

"If a job does not require in person contact with the public, that position should have flexibility. A hybrid approach is better for work life balance. The modern world has become more stressful and if employees have the option to work from home, I believe this model provide employees with a sense of empowerment, engagement, happier employees means more productive employees! " — slknisch

"I'm on the fence, but lean more towards supporting the employee. Here's to hoping.
Yes- of course the employer holds the power. But, most families have already made big life decisions based on the existing flexibility of their work schedule. When that changes, there's many new hidden costs to the employee that lowers their quality of life drastically. Longer commuting times on already tested infrastructure, car maintenance/costs, extra day care, more costly real estate around city centers, loss of passive tasks that get pushed to the weekend, larger toll on mental health, etc. It's absolutely controversial, but there needs to be a better reason than money to make these business decisions. We're meant to enjoy life to the fullest, because it's too short.

Just look at the number of job applicants for remote roles vs in person ones. People value time." — bmilligan9-alias

"Workers having the flexibility to work from home also helps the environment and traffic congestion on the roads." — donbail.sheryl

One-Sized Fits All

"Productivity for remote workers is typically much higher bringing much better value to the use of public funds. Return to office is highly viewed as only a political stunt to garner national votes without considering value for money." — faucherp

"Ultimately the Employer makes the call but the case for back in the office requirements being in place are mixed, in my opinion and so should remain flexible. " — fallonj99

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THE CONSUMER CREDIT CRISIS
Insolvent Canadians Lean On Credit Longer

• Debt loads hitting record levels

• Borrowers delaying formal insolvency filings

• Higher rates magnify repayment stress

• Financial strain broadening across households

Financially distressed Canadians are carrying more debt than ever before by the time they finally seek insolvency protection. A new report by insolvency firm Hoyes Michalos & Associates shows borrowers are relying on credit longer and stretching balances further before filing. Higher interest rates have made servicing that debt more punishing, slowing repayment progress and compounding financial strain. By the time many individuals enter the system, their obligations are significantly larger than in previous years.

A Longer Runway To Insolvency

To add insult to injury, instead of seeking relief early, more consumers are maxing out available credit first. Credit cards and unsecured loans are doing a lot of the heavy lifting, and rising minimum payments are absorbing income that might otherwise reduce principal. This just prolongs a vicious financial spiral.

What This Signals For The Economy

Here’s the broader problem. When insolvent borrowers carry larger balances, it’s generally a sign of deeper underlying stress. Then, as more income goes toward servicing debt, discretionary spending tends to soften. That combination could weigh on consumption, as we saw in the Retail Spending report earlier.

Full story here.

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A SUGER HIGH
Chocolate Prices Climb Into Valentine’s

• Cocoa costs pushing prices sharply higher

• Holiday shoppers face sticker shock

• Manufacturers navigating supply constraints

• Smaller packages becoming more common

Another Valentine’s Day has come and gone this weekend, and hopeless romantics out there may be recovering from sticker shock. Chocolate prices are climbing as cocoa costs, driven by global supply challenges, are on the rise. Manufacturers are paying more for key ingredients and, in many cases, passing those costs through to retailers and consumers. For the Romeo’s amongst us, that means higher price tags at the exact time seasonal demand peaks.

Commodity Markets Set The Tone

As tighter cocoa supplies have pushed prices up across the confectionery sector, producers have been adjusting packaging sizes, product mixes and pricing strategies to protect margins. We see that on store shelves, where familiar treats cost more than they did a year ago, or have been scaled back in size, or both.

Consumers May Adjust Their Spending

On a positive note for the industry, holiday demand tends to be resilient, but even then, if prices get too high it will shift behaviour. Some shoppers may choose to trade down to lower-cost brands or reduce quantities. Valentine’s Day puts this into the spotlight this weekend, but it’s probably something that we’ll be dealing with going forward.

Learn more here.

Air Transat Pulls Back On U.S. Routes: Air Transat is ending certain U.S. routes, including Florida service, as demand patterns shift and competitive pressures intensify. The move highlights how airlines are trimming capacity to protect margins in a more cautious travel market.

Telus Faces Leadership Shakeup Questions: Telus’s unexpected CEO transition raises questions about succession planning and strategic continuity. Investors will be watching closely for signs of execution risk, cost discipline and whether leadership changes alter long-term growth priorities.

Who Pays On The First Date?: A debate over who covers the bill on a first date reflects shifting social norms and financial expectations. In a higher cost environment, even small discretionary expenses can signal broader attitudes toward money and partnership.

RRSP Season And The Debt Tradeoff: As RRSP season unfolds, many Canadians must choose between investing and paying down high-interest debt. For households carrying elevated balances, the guaranteed return from debt reduction may outweigh uncertain market gains.

Goldman Executive Exit Renews Governance Focus: A senior Goldman Sachs executive has resigned, renewing scrutiny around governance and reputational risk. Leadership changes at major financial institutions can ripple into compliance oversight, strategic direction and investor confidence.

The Relative Strength Indicator (RSI) can provide a signal that suggest a stock is either overbought or oversold.
📈A stock that has an RSI over 70 is considered to be in “overbought” territory. This might suggest that the stock is due for a pullback, however it is not a recommendation to sell.
📉A stock that is trading with an RSI below 30 is considered to be in “oversold” territory. This might suggest that the stock is due for a recovery, however it is not a recommendation to buy. Always perform your own due diligence.

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