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Canada's Household Saving Rate Falls, But No Cause for Concern, TD Says

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Canada's household saving rate fell to 3.5% in the first quarter of the year from 5.9% in third quarter of 2024, but the decline appears to reflect normalization rather than financial deterioration, TD Economics said in a Wednesday note.

Households accumulated unusually high savings during the last tightening cycle to prepare for higher borrowing costs and mortgage renewals, said the bank.

As renewals have progressed, some of those savings have been drawn down, TD wrote.

A low saving rate is more concerning when spending persistently outpaces income and households rely increasingly on borrowing or asset sales. That doesn't appear to be the case in Canada, where the decline largely reflects the unwinding of "precautionary" savings, added the bank.

The saving rate could rise temporarily in the second quarter as disposable income benefits from federal support measures while spending remains subdued, according to TD. Beyond the second quarter, stronger consumer spending and improving confidence could push the rate lower again.

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