The Canadian economy is entwined with the U.S. economy, but the two economies are not exactly going in the same direction. Recent economic data shows that the U.S. economy is red hot, while the Canadian economy is slowing down; and the worst is yet to come. U.S. President Donald Trump has said that if Canada doesn’t play by his rules on the NAFTA negotiations, he will impose punishing auto tariffs which would, he said, be the “ruination” of Canada. For investors, that means there will continue to be under-the-radar ways to profit, not just on the stock market but also with currencies.
Canadian Economy Cooling
Statistics Canada announced recently that after two months of increases, employment unexpectedly tanked in August, with the Canadian economy shedding 52,000 jobs. Part-time employment plunged by 92,000 while full-time employment gained slightly.
Most of the job losses came in Ontario, which lost 80,100 jobs; this represents the biggest decline in Ontario since 2009. In addition to a shedding of jobs, statistics show that wage growth is grinding down as well. Not surprisingly perhaps, the unemployment rate edged up 0.2 percentage points to 6.0%.
The unexpectedly bad economic data points to the Bank of Canada taking a break on rate hikes. After the disappointing jobs data, the Canadian dollar slipped, down as much as 0.3% to $0.7580 U.S. cents. Over the last 12-months, the value of the Canadian dollar has fallen almost eight percent against the U.S. dollar.
U.S. Economy Meanwhile Is on Fire
It was a different story south of the border. The U.S. economy is blistering, for now, under President Trump. In August, the U.S. economy added 201,000 jobs with the unemployment rate holding steady at 3.9%.
The U.S. economy has added jobs every month for 95 consecutive months, the longest uninterrupted streak ever. Wage growth meanwhile, picked up in August, advancing 2.9% year-over-year.
Trump, who is more than 19 months into his presidency, has had his economic achievements overshadowed by his disaster of an administration. He is responsible for both. Since President Trump ascended to the Oval Office, the U.S. economy has been on fire, and ratchetted up economic growth most analysts thought was impossible.
That nation’s gross domestic product growth is greater than three percent, the unemployment rate is near a 50-year low, and the stock market is up 27% on the heels of growing corporate profits.
Over the last 12 months, the U.S. dollar index, which measures the greenback against a basket of currencies, is up nearly 4.5% at 95.33. Since April 2018, the U.S. dollar index has increased slightly more than seven percent.
Tariffs Could Send Canadian Economy into a Recession
With the U.S. in the economic driver’s seat, there are fears that Trump imposed tariffs could derail the Canadian economy and send it into a recession. If the U.S. breaks off all ties with Canada and imposes across-the-board tariffs of 20%, the Canadian economy would shrink 1.8%. The U.S. economy would also suffer, but not nearly as much, contracting just 0.1%.
Those projections came in June though, that was before Trump ramped up fears of a trade wars with Canada even more.
President Trump has previously threatened Canada with auto tariffs if Prime Minister Justin Trudeau doesn’t make confessions with NAFTA. But he has never talked about ruining the Canadian economy.
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The undeniable fact is that the Canadian economy is slowing down and the U.S. economy is red hot. It will get worse, even if Canada and the U.S. agree on new terms for NAFTA. No matter what happens, it will have serious ramifications on Canadian and U.S. stocks and the Canadian and U.S. dollars. Those who take Learn-To-Trade.com
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