CA: Merchandise Trade

Tue Dec 06 07:30:00 CST 2016

Consensus Actual Previous Revised
Level C$-2..0B C$-1.1B C$-4.08B C$-4.4B
Imports-M/M -6.3% 4.7%
Imports-Y/Y -1.3% 3.3%
Exports-M/M 0.5% 0.1%
Exports-Y/Y 1.3% -1.2%

Canada's trade deficit narrowed to C$1.1 billion the smallest since January 2016 from a revised C$4.4 billion deficit in September. Imports dropped 6.3 percent October, following a record high in September related to a one time exceptionally large shipment destined for the Hebron offshore oil project from South Korea. Import volumes decreased 6.2 percent and prices edged down 0.1 percent. Exports increased 0.5 percent as a 1.2 percent increase in prices was partially offset by a 0.7 percent decline in volumes. On the year, imports were down 1.3 percent and exports were up 1.3 percent.

The drop in imports was mostly attributable to lower imports of industrial machinery, equipment & parts, down 42.0 percent to $4.0 billion. This decrease followed a high-value shipment from South Korea destined for the Hebron offshore oil project, which was responsible for the large increase in September. Excluding the increase of industrial machinery, equipment & parts imports in September, total imports would have decreased 0.3 percent in October, and the trade deficit would have narrowed from $1.5 billion in September to $1.1 billion in October. Lower imports of energy products and metal ores & non-metallic minerals also contributed to the decline in October. Higher imports of electronic & electrical equipment & parts partially offset the overall decrease. Energy products imports fell 11.6 percent, the third consecutive monthly decrease. However, higher imports of electronic & electrical equipment & parts moderated the declines.

Total exports rose 0.5 percent despite declines in 7 of 11 sections. Higher exports of energy products and motor vehicles & parts were partially offset by lower exports of consumer goods and aircraft & other transportation equipment & parts. Exports excluding energy products were down 0.3 percent. Exports of energy products increased 5.5 percent, the eighth consecutive monthly increase. Exports of motor vehicles & parts also contributed to the overall increase, rising 3.2 percent. Moderating these gains were lower exports of consumer goods, down 3.2 percent to $6.0 billion in October

Exports to the United States increased 1.6 percent, led by exports of crude oil and crude bitumen. Imports edged down 0.1 percent. Consequently, Canada's trade surplus with the United States widened from C$2.5 billion in September to C$3.0 billion in October.

In real (or volume) terms, imports decreased 6.2 percent in October to their lowest level since March 2014. Lower import volumes of industrial machinery, equipment and parts, mainly due to the large shipment for the Hebron offshore oil project in September, and lower real imports of energy products contributed the most to the real decline in October. Export volumes were down 0.7 percent on lower exports of consumer goods as well as basic and industrial chemical, plastic and rubber products. Consequently, Canada's merchandise trade balance with the world in real

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.