Our neighbors adjusting to the repercussions from the American economic headache, just as they tagged along on the ride upward. The loonie is at $0.99 - a thirty year high. If you live along the friendliest of borders, the impact is considerable.
Only hours before the U.S. rate cut announcement, the Canadian forest industry, burned by the double whammy of the surging loonie plus the housing recession in its largest export market, also appealed to the Bank of Canada to act to moderate the loonie's surge.
Further, it asked the federal government for, among other things, more tax relief, including the extension of a two-year tax break on new investments in machinery and equipment to help it compete.
The federal government and Bank of Canada must act now to mitigate the damage that the rapid appreciation of the dollar is doing to Canada's manufacturing sector, the Forest Products Association of Canada appealed in a news release.
"The dollar ... is up over 10 per cent from the 88-cent level it was at the start of 2007 and more than 53 per cent from the 63-cent range it was at five years ago this month," said association president Avrim Lazar.
"This has placed enormous pressure on Canada's forest-products industry and Canada's manufacturing sector more broadly." he said, noting that since 2002, 110,000 jobs having been lost in Canada's manufacturing sector, including 32,000 jobs in the forest sector. [More]
Perversely, the rising price of lumber won't be much help to our struggling housing sector, raising home construction costs just when they need to trim prices to reach now-unqualified buyers. The slump in housing could continue for a significant period, I think as the dame factors that made the boom unwind.
No more. With U.S. home building in the dumps, Romero is working sporadically and sending little money. Diaz and her three young boys are eating rice and beans. She is watching every centavo.
So are economists who track this crucial southward flow of currency. They are worried by what they see.
Remittances are the financial lifeblood for millions of Mexican families and a crucial source of foreign exchange for their government. The $23 billion that maids, cooks, gardeners and others sent home last year — almost all from the U.S. — topped the amount that multinationals invested in Mexico. But fallout from the U.S. construction industry, which employs 1 in 5 Latino immigrants, is now rippling south of the border. Growth in remittances to Mexico has slowed to a trickle.
After increasing an average of just over 23% a year since 2000, remittances for the first two months of 2007 were just 5.5% ahead of the same period last year, according to Mexico's central bank. The figure peaked in May at $2.3 billion and has drifted downward ever since.
Analysts say tougher border enforcement and workplace crackdowns by U.S. immigration authorities may be playing a role. Still, the remittance slowdown has moved virtually in lock step with the stumble in U.S. home building. Housing starts hit their 2006 peak in May before tumbling 50% by year-end. [More]
While this may relieve many who are concerned about illegal immigration, it could be relatively good news for agriculture, which has been struggling to compete for jobs. Harvesting crops is widely perceived as the least desirable of the difficult jobs immigrants typically do ( although having hung drywall, I would debate that).
Still as the economy sputters due to the housing slowdown the transition for workers will only make life for the working poor more uncertain. Obviously the Fed is concerned, and their action yesterday to try to prevent further damage to credit markets and economic growth indicates to me they anticipate a deeper effect than many.
The tendrils of interaction in our economy can often be hidden until they unravel. Over the next months I think we will be surprised by other daisy-chained consequences of what was essentially bad mortgage lending practices.