Decoupling

[KrazyHorse]

Why have the US and Canadian economies decoupled to such an extent over the last couple of business cycles? Via Stephen Gordon at worthwhile.typepad.com:

http://worthwhile.typepad.com/.a/6a00d83451688169e2010535ce87d5970c-pi

Don't have the equivalent chart from US, but for first two cycles it would look pretty similar. The last two look completely different. There's not really a peak at all in the Canadian figures, whereas in the American one there is.

Similarly, attached is a chart of US and Canadian employment rates for ages 16+ (the earlier Canadian ones are yearly averages) versus months since Jan 98.

What the heck is up? 30% of the Canadian economy is trade with the US. That hasn't changed. Why the hell would we decouple?

[Asher]

Energy?

Ontario is certainly still coupled. The West, not so much.

[KrazyHorse]

Energy would imply even more coupling because energy prices are so strongly tied to the US economy (even now).

[Asher]

Originally posted by KrazyHorse
Energy would imply even more coupling because energy prices are so strongly tied to the US economy (even now).

Recently they were more tied to speculators and overseas growth.

US oil demand isn't why the price surged.

[KrazyHorse]

Again, that might account for overall growth pattern relative to US, but not time correlation.

[Dinner]

Originally posted by Asher
Energy?

Ontario is certainly still coupled. The West, not so much.

It's not just energy but instead high raw materials prices (mostly due to Asian demand) seems to be powering the west.

[Asher]

Originally posted by Oerdin


It's not just energy but instead high raw materials prices (mostly due to Asian demand) seems to be powering the west.

Raw materials are small beans compared to energy.

[KrazyHorse]

Not entirely. Energy's important, but so are other commodities.

[Asher]

Small beans are still important for starving hippies in BC.

[RedFred]

I like the black chana beans the best.

[CrONoS]

Stephen Gordon is a macroeconomic teacher at Laval University. His blog is really interesting, I learn a lot reading it!

[Kidlicious]

It's just a lag.

[Vanguard]

I would say it is because Canada's economy produces a much higher percentage of commodities and a relatively lower percentage of services.

So when rising commodity prices hurt the US economy, Canada gets some compensating benefit.

[KrazyHorse]

Originally posted by Kidicious
It's just a lag.

You can't read a chart, can you...look at the 2001 cycle. We never underwent a contraction at all. You guys underwent a classic peak then contraction.

[KrazyHorse]

Originally posted by Vanguard
I would say it is because Canada's economy produces a much higher percentage of commodities and a relatively lower percentage of services.

So when rising commodity prices hurt the US economy, Canada gets some compensating benefit.

Commodity prices rise during expansions. Over-reliance on commodities would imply a stronger cycle for the Canadian economy, not weaker. This was the classic pattern observed up into the 90s. Something has happened since then.