CA: Merchandise Trade

Tue Oct 06 07:30:00 CDT 2015

Consensus Actual Previous Revised
Level C$-0.7B C$-2.53B C$-0.59B C$-0.82B
Imports-M/M 0.2% 1.7% 2.4%
Imports-Y/Y 5.0% 5.8% 6.6%
Exports-M/M -3.6% 2.3% 2.4%
Exports-Y/Y -1.6% -0.2% 0.1%

The merchandise trade balance was in the red to the tune of C$2.53 billion in August after an upwardly revised C$0.82 billion shortfall in July. The deficit was much larger than expected and reflected a 3.6 percent monthly drop in exports that was compounded by a 0.2 percent increase in imports.

The real trade balance also deteriorated as export volumes dropped 0.6 percent versus July while imports edged just 0.1 percent lower.

Within the monthly slide in total nominal exports, sales to the U.S were down 3.0 percent. Purchases from across the border were off only 0.8 percent so the bilateral surplus shrank from C$3.66 billion to C$2.88 billion.

Exports were hit by a near-15 percent monthly slump in the energy sector. However, the entire drop was attributable to weaker prices which nosedived some 16.4 percent. Volumes actually climbed 2.0 percent. Elsewhere, performances were very mixed. Hence, metal and non-metallic mineral products were down 9.7 percent, consumer goods 8.0 percent and industrial machinery, equipment and parts 3.0 percent. Partial offsets were provided by gains in metal ores and non-metallic minerals (15.7 percent), electronic and electrical equipment and parts (5.2 percent) and forestry products and building and packaging materials (4.8 percent).

At the same time imports were lifted by a 2.6 percent monthly rise in consumer goods alongside a 6.0 percent advance in metal and non-metallic mineral products. However, metal ores and non-metallic minerals were off 13.5 percent.

July proved to be a moderately respectable period for monthly real GDP growth (0.3 percent) but still undershot market expectations. Today's report warns that the third quarter could disappoint again as net exports might have had a negative impact (total net exports boosted growth by 0.1 percentage points in the second quarter). The economy may still be on course to meet the BoC's current 1.5 percent (saar) growth forecast this quarter but the picture should be rather clearer after Fridays' employment report.

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.