Competition

The U.S. can stand alone.

Its economy is stabilizing and “not in crisis mode anymore,” says Pablo Martinez, assistant vice president at CIBC Asset Management. He is co-manager of the Renaissance Canadian Bond Fund.

Read: Economy taking off training wheels, Poloz says

Its “economic recovery is well entrenched,” he adds, “and it’s not worth all the effort and all the cost to have all those special measures” the Fed has in place.

Read: Tapering to start within six months, says BNY Mellon

America’s path to full recovery won’t be steady, however, as interest and mortgage rates edge up.

“Some of its engines of growth have been doing well because rates were low,” he says. “I’m [again] referring to the housing sector, and as interest and mortgage rates move up, we’ll see a slowdown. We have to see if it’s possible for the housing sector to do well in a higher rate environment.”

Read: A look at the global economy

So far, he finds higher mortgage rates are having an impact on U.S. new home sales.

Also, while the country’s employment market has been gaining momentum in the U.S., the jobs that are being created—in the retail sector, and for those 45 and older—aren’t paying as much as pre-2008. As a result, the median household income has declined since 2009.

Further, unemployment for those between the ages of 25 and 35 remains high, even compared to levels seen in past recessions.

“For recovery to be maintained we have to [see] unemployment for [that] group go down significantly,” says Martinez.

That’s because these people “normally forms new households…When we see that unemployment rate go down, it will be a confirmation that this economy is doing much better.”

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Choose shorter terms as rates rise

As for Canada, it outpaced the U.S. and Europe following the crisis thanks to discretionary consumer spending.

But we’re paying the price, says Martinez. Our debt levels remain historically high, despite the fact they’ve been dropping over the past few quarters. For this reason, our southern neighbour may economically outshine us going forward.

Consider that higher interest rates and mortgage rates in Canada will force consumers out of the housing market, says Martinez. He notes, “That’s a risk to the Canadian economy since we’re now “seeing the [housing] market slowing down. With those higher mortgage rates, the slowdown will be exacerbated.”

Originally published on Advisor.ca

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