The (North) American economy

September 23, 2008
By: Tim Heston

News of how the American government could take up to $700 billion of bad debt out of the hands of the private sector had the weight of something historic. The move will add as never before to our already mounting national debt. It will reshape the financial landscape, not only of the U.S. but of the entire world.

For me, that last part took a bit to sink in. Who knows whether the strategy will work in the long run, but one thing"s for sure: We"re all in this together. Parties and counterparties of these complex financial transactions span the globe.

This certainly is apparent with our closest trading partner just north of us.
Last week, fabrication equipment maker Bystronic held an open house for its new parts and service facility in Toronto operating under subsidiary Bystronic Canada Ltd. The organization invited Craig Alexander, vice president and chief economist at TD Bank Financial Group, a Toronto-based commercial bank, to give attendees some perspective. Wall Street has obvious problems, and those problems have trickled down to Main Streetaffecting business everywhere.

Banks are already tightening up on their willingness to lend, he explained. Businesses have a problem making big ticket sales. This is why automotive is down &[However], we don"t think there"s going to be a deep recession. Why? The consumer is resilient. Wal-Mart has had strong performance. Americans haven"t shut their wallets. They"ve just become price-conscious by [choosing] the cheapest product that will do the job. They"re not buying cars and appliances, but they still are buying basic goods.

He went on to explain the Canadian perspective. When the U.S. went into an economic slump, we thought the world economies could decouple from the U.S. economy. This didn"t happen, because the world"s economies are connected as never before.

This doesn"t mean what happens in the U.S. happens everywhere. Canadian lenders, for instance, by and large avoided the subprime mortgage mess. Canada"s existing home sales have dropped 15 to 20 percent, Alexander said, but that"s nothing compared to the deeply suffering U.S. housing market.

Canadian manufacturers have felt the pain of the U.S. slowdown. Exporters are dealing with a strong currency, Alexander said, and 76 percent of all [Canadian] exports go to the U.S. & They"re going through a tough time.

Canadian manufacturers also share another challenge with their U.S. cousins: a skilled labor shortage.

The pressure is going to be in finding innovative ways of producing, and affecting the cost side of the equation is critical, the economist explained. Canadian manufacturers need to produce at a lower cost, and that will mean a greater emphasis on capital-intensive automation. Alexander added, It"s really easy for me to say this, but it"s very difficult for [Canadian] businesses to do.

Sound familiar?

Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-381-1314