Low dollar gives boost to local businesses

Drop in loonie's value credited for helping spur Abbotsford's economy.

Low dollar gives boost to local businesses

A Canadian dollar isn’t what it used to be – and that’s good news for Jared Falk and many other Abbotsford businesses.

While local cross-border shoppers may feel the sting of the weakening loonie – which last week dipped below 73 cents U.S. for the first time in more than 11 years – the depreciating dollar has been good news for business owners like Falk who earn the majority of their keep in American currency.

Falk runs Drumeo.com, an online service that provides drum lessons to students across the world. The company, like many online, takes in most of its revenue in U.S. dollars. Its expenses, though, are split about 50/50 between American and Canadian currency. That means that as the loonie has lost about 17 per cent of its value over the past 18 months, Falk has seen the fortunes of his company head in the opposite direction.

“It’s allowed us to hire more people, it’s allowed us to expand,” Falk said. “If you’re bringing in $1 U.S., it’s like $1.30 out here.”

Thanks in part to the dollar, and in part to the growth of his company, he has hired four new employees – a big move for a small business. And his isn’t the only one in the area benefiting from a weak loonie.

“Manufacturing, which is a major industry in the Abbotsford-Mission Census Metropolitan Area, has been bolstered by a lower Canadian dollar,” the Canadian Mortgage Housing Corporation (CMHC) said in its most recent Housing Market Outlook. Related industries, including construction and agriculture. have also benefited, the CMHC said.

A low dollar is generally good for exporters, since costs remain fixed in Canadian dollars while the increasing value of the American buck allows companies to either take the difference as profit or reduce their prices to attract more customers.

Abbotsford’s location near the border has also helped other sectors of the economy, including transportation and warehousing, and accommodations and food services.

“The region will continue to benefit as the Canadian dollar is expected to remain low while the U.S. economy continues to strengthen over the next few years,” the report said.

For around five years, the Canadian dollar hovered between 90 cents US and parity with the US dollar. But last fall, its value decreased sharply. After hovering around 80 cents US, the loonie took another downturn beginning in June and is now valued around 75 cents US.

Abbotsford Chamber of Commerce executive director Allan Asaph said the lower dollar, combined with the improving American economy, has helped local manufacturers, especially those that provide building supplies to U.S. homebuilders.

“The dollar means considerable savings for their customers,” Asaph said.

He said local hotels have also seen occupancy rates jump as the strong American dollar combines with low gas prices to lure tourists north.

Some retailers are also seeing a benefit. Mission economic development officer Stacey Crawford said some local businesses have reported an uptick in business as shoppers stay in Canada, instead of heading for stores across the border.

“Commercially, on the retail side, there are less people floating across the line based on the latest numbers. Anecdotally what I’ve heard is it’s been beneficial to local retailers who are seeing less leakage across the line.”

Richard Truscott, the Canadian Federation of Independent Business’s vice-president for B.C. and Alberta, said that while the low dollar is a good thing for the majority of businesses in a place like Abbotsford, it would negatively affect those businesses that import goods from the United States and sell them locally in Canadian dollars.

Truscott noted that small businesses that buy goods in American currency have taken a substantial financial hit. And while they can pass some of the cost along to the consumer, at some point they must also ensure they don’t scare customers away with higher prices.

Still, the CMHC suggests a weaker dollar helps Abbotsford and is good for the local housing market, with home prices expected to continue to rise through 2017. It is also expected to keep rental vacancy rates below three per cent.

The past year has seen the local unemployment rate dip as low as 5.4 per cent over the summer, although it increased to 6.8 per cent in October.

Canadian dollar Vs. USDCreate line charts

 

“Strong job growth is expected to be one of the factors that will keep migration above 1,300 people annually” into 2017, the report said. “In particular, the 20-29 age group is expected to increase over the next few years in the region.”

But the report notes some of the gains – both for the economy as a whole and individual companies – could be compromised were the loonie to strengthen compared to the U.S. dollar.

Falk is more than aware of that fact. He has run his business for more than a decade, but he considered closing down during the period when the loonie was at par with the American dollar. Now, he said he tries to make sure that any expansion would be viable not only today, but in a world with a more robust Canadian dollar.

“You have to proceed with caution,” he said. “It’s something you have no control over and that you can’t count on.”

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