July 26, 2007
US housing sales fell by 6 % this past month further than what analysts and market speculators expected As well durable purchases were also down by 0.5 % .
The reaction of the markets was decidely negative as there was a big sell off on Wall street and in Canada. If market operators become spooked that the weak housing market and weak US dollar are accurate predictors of a slowdown or even recession the actions of the US Fed will be seen to have been too aggressive in raising interest rates over the past two years. Given the strength of the Canadian dollar, its still trading at over 94 cents US, and the heavy dependence of Canadian exporters on the American market the news is not good for the medium term prospects of the Canadian economy outside of the energy sector.
Manufacturing job losses will continue and will have to be replaced by job growth in energy and services. Once again Canada will have trouble escaping its status as a hewer of wood, drawer of water and resource oriented economy.
The Bank of Canada like the Fed will have to shoulder some of the blame for this turn of events because of their obstinate obsession with the phantoms of inflations past.
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