You've heard, of course, that when the U.S. sneezes, Canada catches a cold. Well, the U.S. is sneezing, and maybe even wheezing. I'm not teasing. (Sorry.) That's not pleasing. (Ooops.) And now the Fed is easing to avoid a seizing. (Yikes. I can't stop.) But Canada won't be freez... catching a cold anytime soon.

The U.S. is certainly coming down with something. Specifically, it's feeling the effect of the most severe housing market recession in generations - one that will be felt in the bones of the whole economy.

There isn't much question about whether the U.S. economy will slow down in the next couple of quarters. The only real question is whether it will avoid falling into a recession.

So, yes, the U.S. is getting sick. But is it contagious, like that old saw suggests?

Not this time. In Canada, the labour market is rocking, the unemployment rate is at a three-decade low, and Canadian housing prices continue to climb, thank-you-very-much. Oh, and our dollar? It's partying like it's 1959.

The reason this doesn't look like past U.S. slowdowns is that there's been a seismic shift in the global trade over the ten years or so. In a nutshell, natural resources have replaced information technology as the key input for growth. In the 1990's, economic growth came from increasing productivity with IT.

Today, global economic growth is coming from economies growing from whence there was none. Think China, for example. And that kind of fundamental growth drives demand - and thus prices - for most commodities in general, and energy in particular.

This turn of events works out nicely for Our One True Native Land, because we happen to be rather rich in the resources for which the world is clamouring. So commodity prices that are driving our good health, despite our sneezy southern neighbour.

Now, this is a bit of a two-edged blessing.

Both the Canadian economy and the Canadian stock market are highly sensitive to the prices of natural resources, so our fortunes shift with the prices of commodities like oil. That means we're not really a robust, well-diversified economy.

That being said, there's every reason to believe that the bull market in commodity prices is a reflection of a structural change in the economics of commodity markets worldwide. We are witnessing the rise of the middle class China, India, and other emerging markets, with the "keeping up with the Joneses" adding to household spending and compounding overall economic growth.

And prosperity is a tough genie to get back in the bottle, so this trend looks inevitable and sustaining (though not without volatility, of course). It's a reasonable bet that the booming Chinese, Indian and other emerging markets will mean continued strong demand for certain commodities, and that's a good news story for Canada.

This change in global demand patterns doesn't just affect us directly - it also changes the extent to which the American economy influences us.

In the past three years, the U.S. was only responsible for twelve percent of overall global economic growth. Meanwhile, China contributed to thirty percent of global GDP, and developing Asia (other than China) added another seventeen percent. This ain't your daddy's global economy anymore, kids.

The developing world is, well, developing. Here they come, ready or not. That means that demand for commodities is likely to remain intact, boosting the Canadian economy despite that hacking cough coming from Uncle Sam.

As for that whole real estate mess down there, well, that's another point of distinction between us and our southern cousins.

Housing starts in the U.S. are falling by twenty percent on a year-over-year basis, the number of unsold homes is rising, house prices have already fallen by three percent, and they're likely to decline by another ten percent before the crying is over.

This painful unwinding of real estate values is the inevitable end of a bubble created by aggressive mortgage underwriting between 2004 and 2007. Sub-prime lending in the U.S. rose to a jaw-dropping twenty-two percent of new mortgages. That's not good - but it's also not our problem.

Here in Canada, sub-prime loans only account for five percent of new loans. As a result, home valuations here in Canada are more reflective of economic and demographic fundamentals (although there are wide regional differences).

So, it's no longer axiomatic that we'll catch la grippe when America's economy takes a sick day.

In fact, both our domestic economy and our stock market are likely to outperform their U.S. counterparts as the growing world economy bids to buy our resources.

© 2007 John Caspar