Wednesday, January 16, 2013

Comparative Household Incomes

Here is Canadian and  US household income since the 1970s. Each are in their own currency, so it says little to nothing comparatively but at least you can see where the bull and bear times were.  Up until the last few years, the Canadian economy moved in pretty much lockstep with the American economy. 

Median income in Canada and the US from TD

For a true comparison of these two economies, we need to take into account exchange rates over this same period. Throughout the 90s, the Canadian dollar continued to weaken against its US counterpart. Peaking at 90 cents to the US dollar in 1991 and then slowly falling to a bottom of about 63 cents the US dollar during 2002.  

By looking at the two charts above, we can see some general patterns. The Canadian economy of the early 90s was marked by a period of declining wages and declining currency value. This made for a double whammy in purchasing power. The US was in recession too, but it was not nearly as severe. The gap between the two countries grew large.

The US and Canadian economies strengthened in the late 90s during the internet boom. The Canadian Loonie held pretty solid as compared to the US dollar as wages increased in both countries. The gap in total purchasing power did not change much.

By the 2000s, the US economy moved sideways (anemic growth) while the Canadian economy continued the strong growth of the decade before. Not only were wages going up in Canada, but so was the relative power of the currency too. The gap in total purchasing power completely closed. The median Canadian now has much purchasing power as compared to their American counterpart.

Adjusting for currency differences, we end up with a chart like this:
Screen Shot 2012-12-18 at 9.47.20 AM

What happened to bolster the Canadian economy that did not happen in the US during the 2000s? The bust to the US is the housing bubble, of course - but that does not account for anywhere near everything.

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