WNY businesses will have to deal with slumping Canadian dollar

by Alissa Kline, Buffalo Business First

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What happens in Canada doesn’t stay in Canada, so it’s no surprise to William Vanecek that there are fewer total passengers flying out of Buffalo Niagara International Airport this year.

As many as 1 million Canadians depart from the airport every year, but the combination of a sluggish Canadian economy and the declining value of the Canadian dollar is one of the likely culprits that drove down overall passenger numbers by 1.8 percent during the first eight months of the year, according to Vanecek, aviation director at the Niagara Frontier Transportation Authority.

The ripple effect is already underway. The fewer the Canadian travelers who fly out of Buffalo, the less the NFTA makes in parking revenues. That means less money for major construction projects and equipment.

“It’s putting a little bit of pressure on us,” Vanecek said. “We’re seeing fewer Canadian license plates in the lots and a decrease in parking revenues, and that’s the bread-and-butter to provide services to our passengers and airlines. That pot is very important to us.”

The airport isn’t the only place in Western New York feeling the effects of an economic slowdown in Canada. There is no sense that the situation is dire, but area manufacturers, retailers and cross-border experts are closely monitoring the neighboring economy, which is now in a technical recession, and the impact of the falling Canadian dollar.

Depending on the industry, it’s a good news-bad news scenario whose outcome is very much up in the air. While area retailers might report fewer sales to Canadian shoppers, local manufacturers might save money by buying cheaper Canadian products.

John Manzella, president of Manzella Trade Communications and a speaker on global business, said he expects the Canadian recession to be short-lived, as long as other global forces don’t interfere.

“Everybody’s watching China,” he said. “If the situation continues to deteriorate in China, that will have a mega-impact on the world, including Canada. The odds are that’s not going to happen, but if for some reason it does, it would directly affect Canada and be responsible for keeping them in a situation where they would be unable to generate very little economic growth for a lengthy period of time.”

It’s difficult to paint a complete picture of all the ways that Western New York would experience a long-term Canadian recession or a persistently low Canadian dollar. But there are a few examples of how the situation has been unfolding over the course of this year:

Traffic is down at the region’s four international bridges, including the Peace Bridge where car and truck traffic fell 5 percent during the first nine months of the year, said Ron Reinas, general manager of the Buffalo and Fort Erie Public Bridge Authority.

He blames the decline on the weakening Canadian dollar, which has dropped in value as a result of the country’s tanking oil industry. As of Sept. 29, one Canadian dollar was worth 74 U.S. cents, which means Canadians have less purchasing power in the United States.

“The question is: What is the Canadian dollar going to do?” Reinas said. “That has a much bigger impact in terms of cross-border travel as it relates to the retail and travel sector.”

A decline in Canadian shoppers would have an impact on Erie County sales tax revenues, which grew just 0.48 percent for the first six months of 2015. The county budgeted $446.5 billion in such revenues, which means that category would have to increase 6.56 percent during the last six months of the year.

“So far, the numbers indicate that if the sluggish trend continues, there would be a $9.8 million hole in the county budget,” said Erie County Comptroller Stefan Mychajliw. “Very thankfully, there are other variances in the Erie County budget where we would be able to offset that loss, but there’s no question that the sluggish Canadian dollar and economy are having an impact on our county budget.”

Those other variances include a decrease in the county’s Medicaid bill and an increase in property taxes, he said.
Clarence manufacturer Seal & Design Inc., which makes gaskets, seals and O-rings, reports an 11 percent increase in sales out of its Ontario office. But the value of those sales is down due to the weakened Canadian dollar.

“Our sales went up but we didn’t make any more money,” President Dean Penman said. “That economy is tightening up. It’s harder work to get the orders and customers are pushing back releases or making releases smaller. They’re watching their money a lot closer up there.”

But it’s not all negative news. Damon Piatek, president and CEO of Welke Customs Brokers USA, said his Tonawanda firm is seeing an uptick in business because more U.S.-based companies are buying Canadian products.

“As the U.S. dollar gets stronger, we import more from Canada. And as it gets weaker, we import less,” said Piatek, whose company processes customs for all ports and borders in the United States. “I think we’re probably up about 35 percent this year.”

That doesn’t surprise cross-border consultant Maryann Stein, who works with U.S. and Canadian companies. The president of Cross-Border Business Experts said Canadian manufacturers would likely ramp up exporting in order to bring in more American dollars.

But at some point those same manufacturers may not want to come to Western New York to shop or dine or buy gas, she said. It depends on how far the Canadian dollar falls in comparison to the U.S. dollar and whether it’s still possible to save money by shopping on this side of the border.

“Products are generally about 25 percent cheaper here, so if you’re going to make the trip and spend a couple hundred dollars for some staples, it would make sense,” Stein said. “But if you’re going to buy a few articles and items, that’s definitely not going to be worth it.”

And if Canadians pull back on buying groceries here, they may also choose to cut back on shopping, eating out and entertainment.

The head of Visit Buffalo Niagara said the tourism and marketing organization continues to monitor the situation and advertises heavily in Southern Ontario region.

“They may not be staying two or three nights; maybe they’re staying one night,” Patrick Kaler said. “But they are still coming and still spending dollars here. Maybe they’re just spending a little bit more wisely and being more selective with what they do while they’re here.”

The Bank of Canada, the equivalent of the Federal Reserve System on this side of the border, will offer an updated economic outlook Oct. 21. Previously, the bank said it expects real gross domestic product to resume in the third quarter, which would indicate that the county is no longer in recession.

But like any economic downturn, whether Canada experiences long-lasting impacts is unknown – which means it may be too soon to say what the impact will be in Western New York.

“I think that remains to be seen,” Stein said. “It’s kind of going to be a waiting game to where it’s all going to end up.”

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