The standard paradigm for decades has been that U.S. consumers are more free-spending than their Canadian counterparts.
But that situation has recently reversed and it's Canadians who are now the spendthrifts, says Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc. North of the border, we are much more confident about spending, he says: "Credit has been more available, and this has been one area where the relative health of our banking sector has made a clear difference."
The latest figures reflect the changes in sentiment and behaviour. Canadians are now saving significantly less than Americans for the first time since the early 1970s.
Canada's personal savings rate fell to less than 3 per cent through the first quarter of 2010. On the other hand, U.S. personal savings rose to 6.4 per cent in June, the country's highest rate of savings since the early 1990s save for one quarter in the midst of the recent recession.
Before this year, Canadians had consistently been better savers than Americans, at times saving 10 per cent more of their income than Americans.
This change in our level of savings also reflects the fact that Canada now has a much lower unemployment rate than the U.S., which, in itself, is an unusual circumstance, Mr. Porter says. U.S. unemployment was 9.5 per cent in July, while Canada's was 7.9 per cent in June.
U.S. levels of personal saving have been increasing since the country's economic recession set in. But Americans may not necessarily be saving because they want to, Mr. Porter suggests. They just haven't got much to spend. Many remain in a state of "flat-out retrenchment," he notes. Some are saving by choice, but most are spending less because of an unavailability of credit.
The U.S Commerce Department reported Tuesday that personal spending among Americans has not increased despite efforts to boost consumer demand, and that income levels remain flat.
Canadians seem to have more cash on hand that they are willing to part with, and confidence that they will be able to manage the associated risks.
In May, Canadian household debt rose to double it's 1989 level, further suggesting that the must-save mentality of recessions past did not resonate with Canadians this time around. Nearly 60 per cent of Canadians whose debt increased during the recession felt comfortable with the prospect of managing their debt, according to a May survey conducted by the Certified General Accounts Association of Canada Furthermore, personal spending on consumer goods in Canada increased 3.6 per cent in the first quarter of this year over the previous year.
While personal savings figures reveal "more about where we've been than where we're going," it would be safe to expect the gap to narrow with adjustments on both sides, Mr. Porter says.
Canadian personal savings rates were at their highest in the first two quarters of 1982, when they were measured at 21.2 per cent and 20.6 per cent, respectively. American personal savings rates at the time hovered around 11 per cent.
"Savings rates are heavily influenced by what interest rates do," Mr. Porter says. When Canadians' savings rates were most above those in the U.S. - in the 1980s and 1990s - federal interest rates were also peaking. A sharp drop in the gap between how much Americans and Canadians were saving was seen in the late 1990s after the Bank of Canada cut interest rates as the country implemented deficit reduction measures.
This year, the Bank of Canada has twice raised interest rates, moves that for many market watchers signalled the beginning of a new tightening cycle.
Those higher rates, coupled with the slowing economic growth seen through April and June, could start to prompt more Canadians to put a little more in their savings accounts.