Broken Supply Chains

Steve Saretsky -

As of this week, unvaccinated US truckers will not be able to cross the Canadian border. This decision by the Trudeau government is going to have significant economic impacts. COVID politics aside, let’s discuss the economic ramifications moving forward and how this could ultimately come full circle for the housing market.

More than 70% of cross-border trade moves by truck. Canada imports $21B worth of food from the US each year. Suffice to say, truckers are the lifeblood of the supply chain ensuring Canadians get their food, and other consumer goods. So who’s going to deliver the goods? According to the American Trucking Association, only 50 to 60% of US truckers are vaccinated. Meanwhile there is already an acute, structural shortage of truckers. It is estimated the US is short about 80,000 truckers, in Canada we are short by about 23,000. There is nobody available to replace unvaccinated drivers.

In other words, expect more supply shortages, and with that, higher prices. Canadians are already grappling with empty shelves at grocery stores and consumer price inflation running at an eighteen year high. Things are particularly bad here in BC where many of our farms were completely wiped out a few months ago due to severe flooding.

Not only is this going to delay any recovery of supply chains, but it will add to inflationary pressures. This is increasing calls for the Bank of Canada to begin hiking interest rates. RBC’s CEO David McKay was out this past week calling for “rapid action” from the central bank to begin combatting inflation. Make no mistake, the rate hikes are coming.

How the markets digest stubbornly persistent inflation, broken supply chains, and higher interest rates on records amount of debt should be of particular concern. Perhaps this is the hard brake the housing market needs? Let’s watch.

Three Things I’m Watching:

1. Canada imports $21B of food every year form the US. (Source: Bloomberg)

2. US inflation rips to 7% in December, highest since 1982. (Source: The Washington Post)

3. Active listings across the nations housing market currently sits at all-time lows. (source: Bloomberg)

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The Saretsky Report. December 2022