CA: Merchandise Trade

Thu Apr 02 07:30:00 CDT 2015

Consensus Actual Previous Revised
Level C$-1.5B C$-0.98B C$-2.45B C$-1.5B
Imports-M/M -0.7% 0.0% -0.6%
Imports-Y/Y 4.3% 8.8% 8.5%
Exports-M/M 0.4% -2.8% -1.7%
Exports-Y/Y 0.5% 3.4% 4.8%

Canada's trade gap narrowed from C$1.5 billion in January to C$984 million in February. January's deficit was revised down sharply from C$2.45 billion to C$1.5 billion. Analysts were expecting a deficit of C$1.5 billion in February. Imports declined 0.7 percent in February while exports were up 0.4 percent. Import volumes dropped 1.7 percent while prices increased 1.1 percent. For exports, volumes were down 3.3 percent while prices jumped 3.9 percent.

Imports from the United States declined 1.2 percent to C$29.8 billion in February. Imports from countries other than the United States edged up 0.3 percent led by Mexico and Saudi Arabia. Exports to the United States were up 1.1 percent to C$32.8 billion. Exports to countries other than the United States were down 1.5 percent to C$10.8 billion, with the United Kingdom and Japan contributing the most to the decline. As a result, Canada's trade surplus with the United States widened from C$2.2 billion in January to C$2.9 billion in February. Canada's trade deficit with countries other than the United States widened from C$3.7 billion in January to C$3.9 billion in February.

Imports were down as 7 of 11 sections declined. Imports of motor vehicles and parts declined 4.7 percent with passenger cars and light trucks and motor vehicle engines & motor vehicle parts contributing to the overall decrease in the section. After reaching a record high in January, imports of industrial machinery, equipment & parts were down 4.3 percent in February. Other industry-specific machinery and other general purpose machinery & equipment were the main contributors to the decline in the section. Overall, volumes were down 7.4 percent while prices were up 3.3 percent. Energy products decreased 7.0 percent, the third consecutive monthly decline. Imports of crude oil & crude bitumen fell 19.7 percent on lower volumes. Since November 2014, imports of crude oil & crude bitumen have declined 44.9 percent, with prices falling 27.0 percent and volumes 24.6 percent.

Exports increased as 5 of 11 sections advanced. Exports of energy products rose 14.9 percent. There were widespread increases in the section, led by crude oil & crude bitumen, natural gas and refined petroleum energy products. Overall, prices increased 17.5 percent while volumes were down 2.3 percent. Offsetting this increase, exports of motor vehicles & parts declined 15.1 percent. Lower exports of passenger cars and light trucks were the main contributor, down 24.1 percent to $3.7 billion, the lowest value since January 2014.

Merchandise trade balance measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade.

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect currency values in foreign exchange markets. This is particularly true for Canada which relies on exports and particularly those to the U.S. for growth. It should be noted that this report focuses solely on goods trade - it leaves services trade for the quarterly national accounts and balance of payments reports.

Imports indicate demand for foreign goods while exports show the demand for Canadian goods in the U.S. and elsewhere. The Canadian dollar is particularly sensitive to changes in its trade balance with the U.S. For the most part, Canada's trade balance is in surplus thanks to its exports to the U.S. Both the nominal export and import values are split into volume (real) and price components. This permits trade data to be analyzed for both changes in trade patterns as well as changing prices. This has been particularly important of late given energy price volatility and the impact on Canada's merchandise shipments. A word of caution -- the data are subject to large monthly revisions. Therefore, it can be misleading to form opinions on the basis of one month's data.

The bond market is sensitive to the risk of importing inflation. This report gives a breakdown of trade with major countries so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.