For many Canadian shoppers, Christmas has come early in the form of a sky-high loonie.
"It just makes good sense to buy as much as I can from the States right now," said third-year business student Erica Bridges. "Even with the additional shipping costs, I always find much better deals when I buy online from American retailers."
Bridges is not the only one trying to cash in on the savings offered by the ascending loonie--Canada Post reported that the volume of packages being shipped north from the United States in Sep. was up by 14 per cent from last year. Furthermore, Canadians flocking to American malls has forced the Canada Border Services Agency to add shifts and extend overtime for its staff. Some Canadian retailers, including Sears Canada Inc. and Indigo Bookstores, have even lowered their prices in response to Canadians angry over price gaps between U.S. and local goods.
However, while many Canadians take advantage of their increased buying power, there appears to be a dark side to the phenomenon.
"Every company I know is under the gun to cut costs, boost productivity, develop new products, invest in new technology, and enter new markets," said Canadian Manufacturers & Exporters President Dr. Jayson Myers. "Many are finding it a challenge to survive from day-to-day as the dollar rapidly eats into cash flow."
With the loonie reaching a 50-year high of $1.10 against the U.S. dollar last week, few times have been as challenging for Canada's manufacturing and exporting industry, which accounts for a third of the country's economy. The rapid appreciation of the Canadian dollar has cut into export sales and, coupled with escalating commodity and energy costs, significantly eroded profits for many companies.
University of Calgary associate economics professor Dr. Frank Atkins argued manufacturers should have anticipated the strengthening of the dollar.
"These companies were warned years ago that the under-valuation of the loonie was only an artificial advantage, and they should have prepared [for increased costs] by investing in people, processes, and technology," he explained. "They didn't heed those warnings and now they're having to make some pretty hard adjustments."
While the national unemployment rate hit a 33-year low of 5.8 per cent last month, the manufacturing industry discharged 3,500 workers. Perhaps an even graver statistic lies in Canada's trade surplus, which fell to a nine-year low in Sep.
"While domestic demand in Canada remains robust, if recent levels of the Canadian dollar were to persist, the risk is that output and inflation would be significantly lower," warned Bank of Canada's deputy governor Paul Jenkins at the Ontario Economic Summit Wed., Nov. 14.
Many groups, including the Canadian Manufacturers & Exporters and the Canadian Auto Workers Association, are calling on the Bank of Canada to lower interest rates, thereby providing some relief to their struggling industries. Royal Bank of Canada chief economist Craig Wright explained that cutting rates would be "a bit of insurance" to dampen the impact of the currency and weakening U.S. demand.
Jenkins, however, gave no indication at his speech that the Bank was planning on taking such action.
"The manufacturing sector is not homogeneous," he said. "Some sectors of the economy are going to have to shrink relative to others."
Jennkins added the global forces such as rising international competition are not going to disappear any time soon.
Atkins agreed, noting he expected the Canadian dollar to stay around "par-ish" with its American counterpart for at least the near-term future.
"This is the new reality for the next few years, and companies are just going to have to learn to deal with that," explained Atkins.