Low interest rates & the US business recovery
I recently attended a luncheon with CIBC economist, Benjamin Tal. His comments on the economy point to a number of positive trends but also shifts. I’ve also included a link to a speech he made on Nov-28. http://www.advisor.ca/togo/the-next-economic-driver-benjamin-tal
Low interest rates and Canadian real estate:
- The problems in Europe and a slow US consumer recovery have the advantage for Canada of keeping interest rates at historic lows well into 2013.
- Commercial valuations should remain high in Canada in large part due to commercial credit opening up and lending rates that are lower than the cap rates.
- On the residential side, though home prices have risen much faster than the rate of inflation over the past decade, these low rates should prevent any great swing in prices. However, Mr. Tal would be concerned if house prices were higher by another 10-15% in a year from now.
Key points on the business\manufacturing sector:
- The economic recovery in the US is now being driven by business rather than the historic drivers of government & consumer spending. One example is the stock market where the Dow is in positive territory for 2011 vs. declines in other world markets.
- Lending to business in the US is growing and credit is more readily available. Contrast this with slow consumer spending where people are looking to pay down their debts and there continues to be tight consumer credit.
- A manufacturing renaissance in the US is taking place that amounts to a reversal of historic trends. These companies are now producing in the US to satisfy consumer demand in emerging market countries such as India, China, Brazil & Mexico.
- In Canada, there are 2 related opportunities to service the emerging market consumers:
a) Produce items and go direct to these markets
b) Integrate into the supply chain (e.g. The Canadian manufacturer produces a portion of the final product.)
If you’ve made it to the bottom of this email, I wanted to wish everyone all the best for the holidays and a prosperous new year.