There’s a 70% likelihood of a soft landing for the North American economy despite the struggling U.S. housing market, rising inflation, and rising energy costs, according to Paul Taylor, chief investment officer, BMO Harris Private Banking and Jack Ablin, CIO of Harris Private Bank.

In a media conference call today, speaking in Toronto, Taylor described these challenges as “headwinds” against growth, or “the fat kid on the other end of the teeter-totter.”

Ablin, speaking in Chicago forecast “robust 2% growth on the backs of the cheques the government has been sending out.” Although he discounted the likelihood of a technical recession, Ablin acknowledged that “it feels like a recessions in many parts of the country right now.”

The intersection of access to lending capital and rising energy costs is weighing heavily — not only on the auto industry — but discouraging large household purchases, be it appliances or furniture. “The government can not keep giving out cheques forever” he says. Ablin anticipates softness in employment in the next quarter in the American market, seeing 50,000 — 100,000 jobs evaporating each month.

Nor does Ablin anticipate much reaction by the U.S. Federal Reserve, which, historically, tends to keep a low profile during elections years, so that its policies are not confused with politics. While Ablin does expect the Fed to stay its course, he does not expect to see the U.S. central bank raise already strong Federal Reserve bond rates. And such liquidity remains “very tight.”

Canada is faring better. If the U.S. housing market, high energy prices and inflation are headwinds, at least there are economic tailwinds as well.

The Canadian export market is deeply affected by the struggling U.S. housing market. Existing houses are sitting empty, while inventory required to build new homes is piling up. Inventory growth exceeds historical averages while starts fall significantly short of the nine-year average.

The rising cost of energy can be characterized as either a headwind or a tailwind. On the one hand high energy prices translates to effectively taxing consumers at the pump, on the other hand the overall higher commodities prices translate into opportunity in the Canadian equity markets.

When returns get within 1% of inflation, explains Ablin, in the U.S. market it is time to move from financials to commoditites. In the Canadian market Taylor points out that the “move to commodities is the obvious call here” as opposed to an explicit decision in the U.S. market.

Oil is at this point sitting just where they expected it to be. “In a $120-130 a barrel working range” said Taylor. For the price of oil to move above $140 a barrel there would have to be “meaningful move in the American dollar, a destabilization in the political situation in the Middle East — in Israel or Iran, or a non OPEC supply disruption. While the marginal of each additional barrel of production sits at about $90 a barrel, Taylor acknowledges that “the upside of $200 is a high watermark.”

“For the next few quarters we will have to fight the head winds,” says Taylor. But in the longterm, the tailwinds will become apparent. Stimulus will take effect in the United States, and abroad, emerging markets will mature. Conditions will usher in more sensitive markets,” concluded Taylor.