One of the metrics I have followed in the last number of months has been the household savings rate in the US and Canada. Since the onset on the pandemic, this metric has somewhat been turned on its head as governments have provided massive stimulus and liquidity to help combat the pandemic and its effect on the economy. In fact, prior to the pandemic, the household debt levels for Canadians was not a very favourable metric. It indicated fairly stretched levels of debt and therefore some cause for concern as to how much more Canadians could do in terms of consumption. Fast forward about 14 months, the US and Canadian Household savings rates are basically 3 to 4 times their longer term average (as shown in the accompanying chart). Indeed mostly all the clients I am speaking to have banked savings as they have not been spending and many have seen the benefit of various forms of stimulus. Add to this as well that interest rates on debt (especially secured home equity loans) are exceedingly cheap. These are very stimulative metrics.

If we consider the way forward, its fairly clear that there is sizable pent up demand for consumption. Even just consider the need and desire for people to get back out there doing things including travelling, home renovations, new cars, and various types of discretionary spending. We have all had these conversations with friends and family. Consumer activity is a major input for economic growth. It sounds obvious but this is one of the main reasons why the North American economy should be fairly constructive moving forward. Historically, in fact, in larger markets like in the United States, the consumer contributes about 75% towards the country’s GDP (Gross Domestic Product) each year. Of course, we can’t predict what additional wrinkles may arise with future phases of COVID, and other unknown risks but on their own, these metrics indicate ample ‘dry powder’ for future consumption and are quite encouraging.