Trouble in Canada? – Economic Slowdown.

Canada is the USA’s largest trading partner. Some people mistakenly think China is our largest trading partner; it is true that most of our imports come from China. But in terms of total imports + exports, Canada tops the list, eh.

Canada and the USA are extremely similar in basically every way. Our cultures are similar. Our economies function similarly. The climate for business and trade in both nations are similar. Crossing the border from the USA into Canada feels like nothing. It’s not at all like crossing the border into Mexico, which feels like entering an entirely different world.

Canada and the USA are deeply entwined. Trends in one nation can be applied to the other with great predictive value. That is why the below chart, taken from Wolf Street, is disconcerting:

 

This chart shows Hours Worked vs. Real GDP in Canada over the past seven years. We can see that most recently, in the second quarter of 2014, the number of hours worked in Canada has sharply declined.

In 2008/2009, the severe drop in hours worked was accompanied by a drastic decline in GDP. Furthermore, increases in hours worked on the positive side are generally accompanied by higher GDP. It is clear that a correlation exists between the two measurements.

Canada has not yet reported it’s 2014 Q2 GDP numbers, so we cannot definitively say that GDP will be revised downward. But if the correlation to hours worked holds true, than we should expect to see a somewhat significant downward revision in GDP.

In Q1, the USA reported a declination of 2.9% in the GDP:

GDP

This was the heaviest single-quarter drop in GDP since 2009. Janet Yellen and the other goons at the Federal Reserve chalked it up to the cold weather, because that was the only excuse they had left. The real culprit is Federal Reserve policy, but they will never admit that.

The point is, the 2014 Q1 drop of GDP in the USA can be applied to Canada with a decent amount of predictive value; it means we can predict a corresponding drop of GDP up nort’. But we don’t have to go out on a limb, because of the Canadian Hours Worked Vs. GDP chart shown above. Hours worked in Canada have declined significantly for Q2; this fact, in conjunction with the US drop in GDP, means that we can predict Canada will likely see a meaty drop in GDP for Q2, when the numbers are announced. It’s not a surefire thing, but it’s a sound prediction.

What does this mean for the USA? It means that we can expect to see a corresponding slowdown in the US GDP for Q2. I think we can expect to hear bad news economy-wise from the Bureau of Labor Statistics when they release the Q2 numbers. When GDP is in decline for two consecutive quarters, that’s when you know that the economy is significantly slowing down. This spites years of monetary inflation and artificially low interest rates, which the Federal Reserve has pursued under the auspices of fixing the economy.

 

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