Canada

Two rusted logging trailers sit abandoned in front of the Bellerive Kanenda sawmill in Mont- Laurier, Quebec. Snow rises four feet deep on the loading docks. A gate blows in the wind.

The impact of the U.S. housing slump is spreading in western Quebec's sparsely populated Antoine-Labelle county, where 17 plants have closed since residential construction began to plummet two years ago. The region has lost more than 10 percent of its 18,000 jobs, prompting Kanenda's former workers to buy the bankrupt facility and try to reopen it.

``We're now at a really critical juncture.'' said Yvon Cormier, head of a development agency for the region. ``When something goes wrong with the U.S. market, we feel it immediately.''

While an oil boom in the west is helping fuel household incomes and domestic demand, there's no escaping the effect of the slowing U.S. economy on Canada, its biggest trading partner. Exports to the U.S. are falling, layoffs at factories are mounting and the central bank may be forced to cut its economic forecast and key lending rate again after trimming both only last month.

Ted Carmichael, chief Canadian economist at J.P. Morgan Securities in Toronto, estimates that annualized growth in the first half of this year will be 0.3 percent, compared with the central bank's current estimate of 1.3 percent.

``Things are going to be worse than what they're saying,'' Carmichael said.

`Shocks'

Only three months ago, the Bank of Canada's Senior Deputy Governor Paul Jenkins told a New York audience that growing demand from China and India for commodities meant the U.S. and Canadian economies ``respond in different ways to certain shocks.'' Canada was benefiting from rising prices for its oil, metals, fertilizer and nickel. Some factories were coping with a weakening U.S. dollar by buying new equipment and cutting costs.

At the time, economists predicted the bank would keep interest rates on hold, even as the Federal Reserve lowered its borrowing costs and Canada's currency soared to record levels against the U.S. dollar.

They were wrong. The central bank in December cut its key rate a quarter point and on Jan. 22 trimmed it another quarter point to 4 percent to help extend the longest economic expansion since World War II. Earlier that day, the Fed reduced its key rate three-quarters of a point in an emergency move and has since lowered it another half point to 3 percent.

Weak Outlook

``The effects of the weaker U.S. economic-growth outlook will lead to additional downward pressure on export growth,'' the bank's rate-setting panel said in a statement accompanying its Jan. 22 decision. ``Further monetary stimulus is likely to be required in the near term.''

In all five U.S. recessions since 1973, Canada's economy shrank for at least one quarter. The panel's next meeting is March 4.

In December, Canada lost 33,200 factory jobs, and there's no evidence the losses have stopped. Canfor Corp., the largest producer of Canadian softwood lumber, said Jan. 18 it would shut two more mills, the latest in a series of closures that has erased almost 6,000 industry jobs since October.

Montreal-based AbitibiBowater Inc., North America's largest newsprint producer, on Jan. 31 announced an eight-week layoff of 115 mill workers in western Quebec and 325 elsewhere.

Falling Exports

Exports of lumber and sawmill products fell 21 percent in the first 11 months of 2007, dragged down by the U.S. housing slump. In December, U.S. house prices marked the first annual decline since the Great Depression.

Babcock & Wilcox Canada, an Ontario maker of power- generation equipment and subsidiary of Houston, Texas,-based McDermott International Inc., is cutting about 75 workers as orders from its parent slow.

``The dollar makes us less competitive in terms of supplying equipment into the U.S.,'' said President Mike Lees. ``Work that had been coming up to us now is going to Mexico.''

Some companies such as Cavalier Tool & Manufacturing Ltd., a Windsor, Ontario-based maker of factory tools, have taken advantage of the strong currency to buy equipment aimed at improving ``accuracy and speed'' that can maintain output with fewer workers, said co-owner Brian Bendig.

``Is a slow economy with a low U.S. dollar a good time to invest? Absolutely,'' he said. ``But it's difficult to invest when you can't see the next job.''

Hardship

The brunt of the hardship has been born by the most- populous manufacturing provinces including Ontario and Quebec. That led Prime Minister Stephen Harper to unveil a C$1 billion ($1 billion) aid package Jan. 10 for hard-hit regions such as Windsor, where Chrysler LLC, the automaker owned by Cerberus Capital Management LLC, closed a minivan-assembly plant for two weeks last month even as it announced Canadian sales rose in 2007.

At the shuttered sawmill, the group of about a half-dozen former employees has taken out a loan from the local credit union and set up a partnership with a union investment fund. Their plan is to get the mill running again and rehire 135 of the 200 laid-off workers, said Francois Racine, one of the partners.

``The equipment is still good,'' he said. ``We want to be ready for when the market rebounds.''