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Weakness in the Economy of United States Largest Trading Partner


Thursday, November 12th, 2009

Although the largest trading partner by a diminishing margin, the United States neighbor to the North, Canada, remains number one. Through August of 2009, Canadian exports to, and imports from the United States totaled $272 billion, compared to $226 billion with China. This is why it is important to recognize the direction that this economy is heading in. All of the anecdotal evidence aside, the call for the end of the global recession could potentially be premature.

In the United States government programs such as the “cash for clunkers” helped to contribute to a turnaround in GDP, and calls from economists that although we should not expect a V shaped recovery, the worst is most likely over. While that remains to be seen, particularly as economists are correct as often as weatherman, the Canadian economy has undergone downward revisions in economic growth forecasts. It will be difficult for the United States economy to remain stable when its largest trading partner is not.

Last month 3 critical economic indicators for Canada were reduced: employment, output and prices. The growth forecast for the third quarter was cut from 2% down to 1.4%, and as in the U.S. where the official unemployment rate topped 10% (although actually closer to 20%), those out of work, part-time versus fulltime or afraid of losing jobs do not feel comfortable spending money on discretionary items. They will perhaps repair or go without.

As we move into the Christmas season, an extremely critical time of year for retailers, will consumer spending be there? The Canadian CPI has now declined for the longest period since the ‘50’s, and the unemployment rate is close to an 11 year high, not positive indicators.

It is in the best interests of all to put the best foot forward in order to maintain consumer morale and confidence. To this end, the reporting good news and downplaying of bad is a good game to play. The reality though is that like real estate consumer confidence is local. The government can pump out good news, but if I am not confident in my near term future, I will not be a participant in buying product.

Without the consumer buying both here and in Canada, real economic recovery will be difficult.



Article by Michael Haltman

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com



Tags: canada , canada exports , canada unemployment , united states , us trade trade partner