US Unemployment Numbers Hinder Canadian Economic Growth

USUnemploymentIn Canada we are very used to living beside our American friends.  Every prime minister who has ever been elected to this country knows they have to think about the Americans first.  Keep our American friends happy and Canada will do well.  So when it was announced last week that the US unemployment rate had risen to 9.8%, it wasn’t the best of news.

Simply put in Canada we cannot expect our economy to boom again until our American friends get their economic mojo back.  Yes we have some good news in this country as the unemployment rate fell to 7.6% last week, the lowest in approximately 2 years.  The problem is our American friends are going in the opposite direction, which inevitably will back up to Canada.  Finding a way to get the American economy percolating again is surely job one.

Earlier last week Statistics Canada said that our gross domestic product rose by only .3% in the third quarter down from .6% in the previous quarter.  Statistics Canada said that lower exports and lower investment in housing restrained the GDP growth.  The Bank of Canada announced that they would not be raising interest rates this month or any time in early 2011.  That was a welcome piece of news for me, as an interest rate hike would send the Canadian dollar higher.  For the manufacturing sector in Ontario that is about the last thing we need, especially at a time when the American economy is still sputtering.

In many ways I think this is a little bit of a shift for the Bank of Canada and its monetary policy.  It wasn’t too many months ago that the Bank of Canada was raising interest rates 25 basis points at a time.  Bank of Canada Gov. Mark Carney seemed constantly worried about the specter of inflation raising its ugly head.  With interest rates at record lows, raising those rates did not seem to be too much of a risk.  The only problem was the US economy has not responded like many of us have thought.  So having the Bank of Canada governor come out now to say he has no plans to raise them is a bit of a turnaround.

The problems south of our border have much to do with unemployment.  9.8% unemployment is high for our American friends.  I hate to see that rate over 10% but this recession was very deep and in many ways is still somewhat fragile.  Last night on the CBS show 60 minutes US Federal Reserve chairman Ben Bernake mused that he might not be done with monetary stimulus.  He was asked what he would do if unemployment continued and he said something to the extent of a QE3.  Presto, you print more money and unemployment is solved!

I know I am being trite when I write something like that but the US Federal Reserve Chairman is being honest.  I fully expect him to facilitate more stimulus into the US economy to fend off deflation as well as boost employment numbers.  With interest rates so low and unemployment so high you almost have to ask what else can he do?

This is the American problem.  They have almost nothing left to stimulate their economy with.  They have a scenario where prices especially in the housing market are still decreasing.  They have high unemployment.  So the US Federal Reserve has lowered interest rates to the bottom and then started printing money through different QE instruments.  So far economic disaster has been averted but recovery in employment numbers has not.  So Pres. Obama is stuck in quite a mess.  The economic meltdown of 2008 was not his making.  He was handed that and now in 2010 nothing on the economic front seems to be working.  Guess who gets the blame?

In many ways it’s like looking up the hill and trying to get to the top by riding a bicycle.  In this case our American friends are pedaling as hard as they can, but they are not moving hardly at all to get to the top.  At a certain point you would think that would change, but so far the reality is it hasn’t.

Back in Canada we don’t have the same problems and are in better economic shape despite our dependence on the US economy.  Yes, our preponderance of commodities helps, as we all know the commodity markets are hot.   Needless to say, it would be so much better if our American friends could lead the way again.  As Canadians, we need that.  Without a total American economic recovery we will be limited ourselves.  At some point will be on that same bicycle.  So let’s hope our American friends get it going soon.

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