Cheap Canadian dollar finally luring Americans north
Gap between what Canadians spend in the U.S. is narrowing with cheap loonie
The low Canadian dollar is finally starting to lure more Americans northward, but Canadians are still expected to spend twice as much in the U.S. this year as Americans will here.
That's one of the conclusions of a new report from Toronto-Dominion Bank, where economist Derek Burleton crunched some numbers on two-way travel between the longest undefended border on earth and tried to gauge how it was changing because of the weak Canadian dollar.
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As most Canadians know, the loonie lost 16 per cent of its value last year, and currently trades just above 70 cents US. The bank expects the loonie to stay around that level for much of the year, so based its projections on that assumption.
The bank found that Canada's weak currency is indeed having an impact on the numbers. "American visits to Canada are finally picking up," Burleton said. Total visits by Americans to Canada were up 1.6 million in the first 11 months of 2015 compared to the same period in the prior year. "With a similar momentum likely to carry over in 2016, American spending in Canada is poised to rise to $9.6 billion Canadian," Burleton said, "the highest level in over a decade."
But Canadians will still spend far more in the U.S. than Americans will here. "Canadian visits south will continue to overshadow American visits north, and Canadians are expected to spend in the U.S. at least double the aggregate amount that Americans will spend in Canada," Burleton noted.
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Even with the loonie making everything more expensive in Canadian terms, Canadians are still expected to spend about $20 billion in the U.S. this year, a decline of $3 billion from last year's level.
The bank calculates the gap between spending from residents of the two nations in the other at $11 billion this year. That's down from an all-time high of $17 billion in 2013, when the loonie was near parity. That year, Canadians made a record number of trips to the U.S. and spent handsomely while they did.
Americans, by contrast, weren't coming to Canada and spending money unless they had to. "Put another way," Burleton said that gap of $17 billion meant that "total American outlays in Canadian malls, hotels and restaurants amounted to only 30 cents of each dollar spent by Canadians in the United States."
Canadian trips to the U.S. appear to be very currency-sensitive in that while Canadians still go to the U.S. very frequently — more than 80 per cent of all the trips Canadians make are to the U.S. — when the loonie is low, Canadians only go and spend money in the U.S. if it can't be avoided.
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When the loonie is strong, Canadians tend to make shopping trips that last more than a day, and spend on average $900 per trip, Burleton calculated.
But Americans, by and large, don't come north to shop. "Visiting family and friends and to carry out business tends to be a more popular reason for U.S. trips to Canada than vice versa," he said. That explains why most Americans trips to Canada are between two and six days long — almost twice the ratio of Canadian trips to the U.S., which are either short day trips or much longer ones of more than a week.
Add it all up, TD calculated, and the mini-surge of U.S. travel to Canada is helping Canada's economy. "The Canadian economy will not reap all the benefits of this swing in fortunes, as some of the spending that would have occurred in the U.S. will be saved or spent in other parts of the world," Burleton said. "Nevertheless, a simple calculation pegs the cumulative direct economic boost to Canada at $4-5 billion over the 2015-16 period."
But not all those benefits will be felt evenly. The bank says British Columbia, Ontario and New Brunswick are traditionally the provinces that tend to draw the biggest number of American visitors, so they should be poised to gain this time.
The low loonie is already paying off for many cities in those provinces. Toronto, for instance, reported on Monday that 2015 was a record year for visits by Americans to the city, up 10 per cent from a year earlier. "In 2015, both air and land crossings surged, resulting in a record number of American visits," said Tourism Toronto, which added that it is increasing its marketing efforts in the U.S.
Canada's hard-hit energy-producing regions in the prairies and the East Coast, however, won't see much benefit. "The beleaguered oil-producing regions that are struggling under the weight of low crude prices don't appear to be seeing an influx of U.S. visitors," Burleton said.