Exchange Rate Anxiety

Canadians are conditioned to pay more for goods, so their prices are marked up in what’s called “country pricing”

By Kellyn Brown

Last week Gov. Steve Bullock delivered his State of the State address and struck an upbeat tone, citing lower unemployment rates and job growth “among the fastest in our state’s history.” There is a level of optimism in Montana and plenty of indications that this year will be a good one.

A day before the speech, the Department of Labor and Industry issued a press release breaking down 2014 economic data. The agency reported that 12,663 jobs were added across the state last year and the jobless rate decreased by a full percentage point during that time to 4.2 percent, well below the national average.

“Montana’s economy is continuing its momentum and promising a good year in 2015,” Labor Commissioner Pam Bucy said.

True, things are looking good, although potential “negative impacts from falling oil prices” mentioned in the report loom larger here than any part of the state except those eastern Montana towns close to the Bakken. The Canadian dollar has fallen hard along with the price of oil, and economists are now guessing how much that might affect the local economy, which relies heavily on tourists from the north.

It’s easy to forget how far the local economy has improved over the last four years. Not long ago, in May 2010, Flathead County’s jobless rate hit a staggering and record-breaking 13.8 percent. In December 2014, our unemployment rate was just 5.1 percent, an improvement of 1.8 percentage points over the course of a year in which the county added 1,850 jobs, according to the Labor Department.

But as we enter 2015 with “momentum,” we also must keep an eye on plummeting oil prices that have put extra cash in our pockets – the same low prices that have dragged down Canada’s currency, which is now sitting at about a six-year low compared to the U.S. dollar and making a trip across the border to the Flathead much more expensive than it was even a few months ago.

Despite that, few foresee a dramatic drop in Canadian visitors, at least in the short term. That can partially be attributed to how expensive day-to-day goods are north of the border. While college tuition and health care are less expensive in Canada, just about everything else costs more. When the two currencies are on par, tourists often express their amazement at our bargain-basement prices.

Food, drinks, appliances, tires, even hockey pants are cheaper in the U.S. In fact, when the Canadian dollar was at its strongest, the Canadian government commissioned a report on the price gap and concluded that it needed to lower import tariffs to combat higher prices. But tariffs aren’t the only culprit.

Canadians are conditioned to pay more for goods, so their prices are marked up in what’s called “country pricing.” According to a CBC Marketplace report in 2013, manufacturers often charge more there because Canadians are simply willing to pay it. Consequently, while U.S. goods and services currently cost Canadians more, they’re still not exorbitantly high. And fuel prices for traveling here are far less expensive.

One area to keep an eye on is the housing market, which was buoyed by Canadian second homeowners during the economic downtown. Calgary’s housing market is already weakening, according to a Financial Post report. In Canada’s oil capital, sales are down 34 percent in January compared to a year ago, and listings are up 22 percent, according to the Calgary Real Estate Board.

Last week Bullock declared the “state of the state is strong!” He’s right. Flathead County, especially, has come a long way since the depths of the recession. But optimism for the new year may be tempered a bit by anxiety from our steadfast neighbors.

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