CA: Merchandise Trade

Fri Nov 04 07:30:00 CDT 2016

Consensus Actual Previous Revised
Level C$-1.7B C$-4.08B C$-1.9B C$-1.99B
Imports-M/M 4.7% 0.0%
Imports-Y/Y 3.3% -3.3%
Exports-M/M 0.1% 0.6%
Exports-Y/Y -1.2% -2.5%

The merchandise trade balance returned a much larger than expected C$4.08 billion shortfall in September, up sharply from a minimally revised C$1.99 billion deficit in August.

However, the record red ink reflected an exceptionally large transaction, specifically the purchase of a module from South Korea destined for the Hebron offshore oil project in Newfoundland and Labrador. This saw imports of industrial machinery, equipment and parts surge some C$2.9 billion or 71.4 percent on the month to a record C$6.9 billion. Excluding this, total imports, which rose 4.7 percent, would have fallen 1.6 percent to yield a shortfall of only C$1.2 billion.

Meantime, exports were just 0.1 percent higher on the month, held in check by a 0.6 percent drop in sales to the key U.S. market. Even so, with purchases from across the border down 1.1 percent, the bilateral surplus widened slightly from C$2.60 billion to C2.72 billion.

The distortions to today's data mean that the headline figures should be treated with care. Nonetheless, they include a disappointing deterioration in the real trade balance as export volumes dropped 0.8 percent versus August while real imports gained 2.3 percent. The worsening here will limit what should be a return to a positive contribution from overall net exports to GDP growth in the third quarter following a sizeable hit in the previous period.

The merchandise trade balance measures the difference between imports and exports of goods. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade and can offer a guide to an economy's competitiveness. Nominal data are supplied with regards to principal trading partners and product classification.

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.