Whenever the Loonie hits par, most of us jump into our cars, wait four hours at the border and have a free for all at Target. We don’t usually stop to think how this affects Canadian business — we just want the best deal we can find. Turns out, shopping in the States could be a good thing.
Let’s first talk about the manufacturing sector, as that always gets tossed into the debate. Those same people who want to shop often feel guilty that a high Loonie is making it difficult for Canadian companies to shop their wares down south. Well, good news — the manufacturing industry is doing just fine even as the dollar rises.
In January manufacturing shipments jumped 2.4%, an astounding figure considering the dollar’s rise and the still fragile U.S. economy. Pre-recession this would have been a surprise, but, says Francis Fong, an economist at TD, we can’t look to the past to see what will happen today. “The old expression was that when the U.S. sneezes, Canada catches a cold,” he says. “We’re not in that situation anymore.” Our growth, he says, is more organic and while we still depend on America’s monetary and fiscal stimulus, this country’s now able to chart its own path.
Fong says the recession has given American companies the opportunity to rebuild inventories, so when consumers are ready to start shopping again, they’ll have goods to sell. That’s means more exports for Canada, even though the economy is still weak and the dollar is edging closer to par. “The high dollar isn’t inhibiting our recovery,” says Fong. In other words, you don’t have to feel too guilty about having a parity party at the Cheescake Factory.
Now, about that shopping. Don’t feel guilty about it either. In years past, people flocked to the States because they wanted to shop at all those fancy stores like Home Depot and Wal-Mart. Now that we’ve got those places and the prices and inventory isn’t much different from the stores in the U.S., we don’t need unload all our cash to buy cheap, household items. (And, if Tar-Jay eventually does come to Canada, like they’ve alluded, then we’ll never have to go to the States to shop again.)
If you do want to spend money in the States, then don’t worry, the savings you get may actually benefit Canada. Take real estate as an example. More and more Canadians are taking advantage of the depreciated housing prices in Florida. Sure, they’re spending a large amount of cash in Obama-land, but now they don’t have to drop $600,000 on a vacation property in Canada. Instead we can spend $250,000 on a Florida condo, and have $350,000 to spend anywhere we please — and you can bet a good chunk of that will be spent here. It’s true that the vacationer might spend half a year outside of the country, but because mortgage payments will be lower, they won’t have to tighten their belts as much when they are in the Great White North.
But, even better than that, if that person sells in 10 years, when prices climb back up, the capital gains they make will hopefully be spent here. So if they can sell for $600,000, there’s $350,000 right there that will get used in Canada.
Here’s a smaller example. Say someone really wants to buy a book. The cover price in Canada says $30, in the U.S. it’s $20. So they take trip across the border, buy their book and come home. Where do you think that extra $10 bucks will be spent? (Probably on the gas it takes to get to the U.S., but hopefully that station is on the Canadian side of the border.)
Of course, it’s difficult to quantify all of this, so it’s hard to say whether or not it really does make a huge difference where we buy, but at least we can now do our shopping (more or less) guilt free.