CA: Merchandise Trade

Fri Jan 06 07:30:00 CST 2017

Consensus Actual Previous
Level C$-1.6B C$0.5B C$-1.1B
Imports-M/M 0.7% -6.3%
Imports-Y/Y -0.8% -1.3%
Exports-M/M 4.3% 0.5%
Exports-Y/Y 5.2% 1.3%

The November trade balance surprised and recorded its first trade surplus since September 2014, moving from a C$1.0 billion deficit in October to a C$526 million surplus in November. Exports were up 4.3 percent on the strength of increased exports of metal and non-metallic mineral products as well as record exports to countries other than the United States. Imports were up 0.7 percent on the month, mainly on higher imports of energy products.

Exports increased 4.3 percent to C$45.6 billion, the highest level since the record C$45.7 billion in January 2016. Export volumes rose 3.5 percent and prices were up 0.8 percent. Overall, 10 of 11 sections increased -- a first since May 2014. In November, exports excluding energy products were up 4.7 percent. Year over year, total exports increased 5.2 percent.

Exports to countries other than the United States rose 9.5 percent to a record $12.0 billion in November, surpassing the previous record set in December 2011. This was also the largest monthly percentage increase since May 2008. Exports to China were up 11.1 percent to C$2.0 billion, mostly on higher exports of coal. Exports to South Korea, Brazil and Japan also increased.

Total imports were up 0.7 percent to C$45.1 billion in November, with 7 of 11 sections recording gains. Prices increased 1.0 percent, while volumes were down 0.3 percent. Higher imports of energy products and consumer goods were mostly offset by lower imports of aircraft and other transportation equipment and parts, and motor vehicles and parts. Year over year, total imports declined 0.8 percent.

Imports from countries other than the United States were up 3.5 percent to C$15.6 billion in November. This increase was largely led by higher imports of crude oil from Norway, Algeria and Saudi Arabia. Lower imports from China partially offset these gains. Consequently, Canada's trade deficit with countries other than the United States narrowed from C$4.2 billion in October to C$3.7 billion in November, the smallest deficit since November 2014.

Exports to the United States also rose in November, up 2.5 percent to C$33.7 billion, while imports from the United States were down 0.7 percent to C$29.5 billion. Consequently, Canada's trade surplus with the United States widened from C$3.2 billion in October to C$4.2 billion in November, the largest surplus since June 2015.

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.