U.S. Household Wealth and Canadian Exports

Two sets of numbers published yesterday show that while Canada has not seen the precipitous drop experienced by the U.S. we may yet trail our largest trading partner into a prolonged recession.

First, as reported by Calculated Risk, a report by the Federal Reserve showed that household net worth has fallen by more than $14 trillion since the peak of 2007, roughly the equivalent of U.S. GDP. The negative wealth effect of such a number cannot be overstated.

Not surprisingly, as the effect of this takes hold, Canada's trade numbers are rapidly deteriorating. Indeed, our long run of trade surpluses has now slipped into deficit. Almost 90% of declining exports are reflected in reduced exports to the U.S. which now accounts for 72% of total exports vs. 77% less than a year ago, according to the Globe and Mail.

These problems, according to the same Globe article, are compounded by a rising Canadian dollar. Indeed, they say, a study by Export Development Canada chief economist Peter Hall indicates that if the current exchange rate persists, economic growth through 2010 is likely to be about zero. And what remains unspoken is that Ontario's manufacturing sector is unlikely to begin recovering anytime soon.