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It seems there’s a good reason beyond tariffs for Canada to reduce its reliance on exports to the United States. Several key indicators suggest that under the rosy outlook for the American economy lie booby traps waiting to explode.
U.S. Treasury Secretary Scott Bessent told CNN early in November, “I think we are in good shape, but I think there are sectors of the economy that are in recession.”
That’s far more foreboding than it appears. In a piece in Business Insider, economist Neil Dutta argues the turning point won’t be a casual slide but rather a number of factors colliding at once accelerating the downturn.
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He points to weakness in U.S. homebuilding, where builders are on the verge of stopping new construction to unload existing inventory. In commercial construction, the business of architects is sluggish, and since you have to draw a building before you can build it, there’s no boom in commercial construction on the horizon. In both cases, a hiring freeze and layoffs are in the future.
Restaurants are slashing profits to try to keep customers coming back, he writes, and says “slower sales and slimmer profits are not a recipe for more hiring.”
Federal government jobs have been slashed, and state-level employment is also in peril.
Freight shipments are down, with shipments from Asia to the U.S. off by 30 per cent. Railcar loadings are down by six per cent and capacity in trucking is also shrinking. If you’re not moving products to where customers can buy them, they aren’t buying them.
Low crude oil prices mean nobody is going to “drill, baby, drill.” Lumber prices are soft, meaning sawmills aren’t making money, which combined with the trade war on Canadian lumber will also feed into declines in homebuilding.
Dutta says once these key sectors start to slide, the downturn in the labour market will have far-reaching effects: as people hold onto their wallets due to job loss, revenues for businesses slide, which feeds into a self-fuelling spiral downwards.
Canada won’t be immune to some spillover effects, but work to diversify markets should help ease some of the pain.
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