U.S., Canada and Mexico: After the Great Recession

Written by Jillian Friesen

The Great Recession of 2008-2009 left the world scrambling to catch up to prior levels of growth and employment.  In it’s most recent report, McKinsey&Company tries to figure out the behavior patterns of Mexican consumers.  This was summarized in a GEI News article.   The McKinsey found indicated how Mexican consumers have reacted to the crisis and showed how they have emerged.  Comparing the results to statistics and data from the U.S. and Canada reveal some very interesting facts.  Click on map for HUGE image. In the very beginning of the McKinsey report, is was mentioned that Mexican consumers have a more optimistic outlook on the economy than their neighbors to the north. This psychological factor could have played a definitive role in the rather quick upturn in the Mexican economy. For the most part, Americans have lost faith in not only their government, but their financial system as well. The chart below, taken from Gallup, shows the percentages of Americans who would rate the current economic conditions in the economy as “excellent/good” or “poor”.

Source: Gallup.com

Unfortunately, those Americans who viewed the current economic conditions as poor were in the majority. Only 15% of Americans had a positive outlook on the economy. From 2011 to 2012, U.S. inflation dropped 1.1%, while Mexico experienced an increase in inflation. And comparing the U.S. to its northern neighbor, the consumer expenditure is still higher in America even though household income is now lower than in Canada.

Key Data for the U.S. Economy

Source: Euromonitor.com

The Canadian economy has experienced a major boom.  Just recently, Canada surpassed the U.S. in average net worth.

“Currently, the average Canadian household is more than $40,000 richer than the average American household. (According to the latest Environics Analytics WealthScapes data, the average household net worth in Canada was $363,202 in 2011; in the U.S. it was $319,970.) And these are not 60-cent dollars, but Canadian dollars more or less at par with the U.S. greenback. Furthermore, these figures ignore public-sector (government) debt that presumably people on both sides of the border or their children will some day have to pay. Such debt is higher in the U.S. as a percentage of GDP than it is in Canada.1

This may seem like good news for Canada. However, it was coupled with the fact that, for the first time, Canada also surpassed the U.S. in its debt to disposable household income ratio.  In order to reach its current economic heights, Canadians borrowed enormous amounts of money.   Canadians bought houses in a time of high employment and very accomodating economic conditions for the past few years – many worry about a Canadian housing bubble.  Canadians are taking advantage of low interest rates.   Their high borrowing rate most likely reflects greater confidence in their  economy than Americans have in theirs.  The real GDP growth rate recorded for Canada in 2012 at 2% is certainly not impressive, but it is still better than the U.S. GDP growth.  Mexico, on the other hand recorded a 2.2% growth rate, fairing slightly better than either the U.S. and Canada.  Mexican consumer expenditure is on the rise, but is not growing nearly as quickly as its American and Canadian counterparts in spite of the slightly better economic growth in Mexico.

Key Data for the Canadian Economy

Source: Euromonitor.com

Canada’s debt system and the low interest rate strategy which Canada implemented in response to the Great Recession helped Canada sprint to the head of the pack in terms of recovery.  However, many worry it may have gone a bit too far.   Bank of Canada Governor Mark Carney, along with the IMF, believes a global economic recovery is still a long ways away. Mr. Carney believes this is not an average economic slump.  It is unorthodox in its nature and people who believe the recovery will take place in the same manner or sequences of other recessions are only “fooling themselves”.  Canada is lucky in the fact it did not enter the Great Recession with colossal amounts of debt like the U.S. and Europe.  But Canadian debt has continued to grow and now is comparable to that in the U.S.

Source: Bloomberg.com

Mexican consumers have  been prepared to scale back spending in order to preserve the ability to purchase their valued brands, even if it means not buying as much food or other necessities. Time tested and valued brands are fairing very well in the Mexican market right now. Americans on the other hand, have preferred to switch to inferior brands in order to keep up with their pace of spending and quantities needed. When it comes to recovery, Mexico is not doing much better than the U.S. Add to it the enormous amount of corruption and poverty already in place puts it in a rough spot. However, just the other week, the ambassador to Mexico, Anthony Wayne was quoted saying:

“The trade relationship between the United States and Mexico is not just coming back — it’s coming back strong.”

“But the increase in bilateral trade also brings with it a new set of challenges our two countries must be prepared to address.”

Mexico’s close proximity to the U.S. and Canada has always been a huge benefit for the nation. It is able to manufacture goods at a cheaper rate than its northern neighbors. However, this may not be the case for long. Another quotation, this one from Luis Sada, a vice president of business development for FINSA, which operates industrial parks in cities bordering South Texas:

“Being close to markets is critical for all manufacturers, in that sense Mexico has become much more competitive than it used to be,”

“China has become much a less competitive opportunity or option for manufacturers.”

Key Data for the Mexican EconomySource: Euromonitor.com

Unfortunately, China is still able to produce goods at such a cheaper rate it makes more economic sense to produce goods over there. The extremely low Chinese labor costs offset Mexico’s logistical benefits.

Source: BLS

From what we can tell, Americans are still weary of the current economic conditions. Americans are scaling back their purchases, however their PPP (Purchasing Power Parity) index is rising.  Incomes are also rising while GDP percent growth is falling compared to recent years.

The constant speculation about whether or not more quantitative easing will be necessary looms on the minds of those on Wall Street and businesses. July’s retail sales numbers, just released earlier last week, were enough for many in the market including Goldman Sachs Chief U.S. economist, Jan Hatzius, to feel more quantitative easing from the Fed will not be in the near future. However, he does not rule the possibility of QE3 out completely.  The manufacturing sector reported lower than average inventories, a sign the economy may be in for another slow down.

Canadians on the most part are enjoying their spending power. The Canadian government along with banks are worried about a bursting “Canadian housing bubble”.

Mexico for the most part is slowly improving its economy. Mexican consumers prefer to purchase proven and high end goods rather than referring to the cheaper substitutes. Inflation is teetering in the 4-5% range.



1. The Globe and Mail: Canadians are Richer than they Think

2. MySanAntonio.com: U.S – Mexico Trade Rebounding

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