CA: Merchandise Trade

February 7, 2017 07:30 CST

Consensus Actual Previous Revised
Level C$0.3B C$0.9B C$0.5B C$1..0B
Imports-M/M 1.0% 0.7% -0.2%
Imports-Y/Y -0.7% -0.8% -0.9%
Exports-M/M 0.8% 4.3% 5.1%
Exports-Y/Y 3.4% 5.2% 6.2%

December's merchandise trade surplus was a greater than expected C$0.9 billion analysts expected a C$0.3 billion surplus. Exports were up 0.8 percent on the strength of higher energy product prices. Imports increased 1.0 percent, mainly on stronger imports of aircraft and industrial machinery. However, in real (or volume) terms, exports were down 1.4 percent in December as a result of declines in metal ores and non-metallic minerals as well as motor vehicles and parts. Import volumes were up 0.4 percent on higher real imports of industrial machinery, equipment and parts. Consequently, Canada's trade surplus with the world in real terms narrowed from $2.9 billion in November to $2.1 billion in December.

Total nominal exports rose 0.8 percent despite declines in 7 of 11 sections. This was the third consecutive monthly gain in exports. Higher exports of energy products were partially offset by lower exports of motor vehicles & parts, metal ores & non-metallic minerals and metal & non-metallic mineral products. Exports excluding energy products were down 2.1 percent. On the year, total exports increased 3.4 percent.

Total imports were up 1.0 percent with 6 of 11 sections posting gains. Higher imports of aircraft & other transportation equipment & parts, industrial machinery, equipment & parts and metal & non-metallic mineral products were partially offset by lower imports of energy products. On the year, total imports declined 0.7 percent.

Exports to the U.S. edged up 0.2 percent while imports were 1.3 percent higher. Consequently, Canada's merchandise trade surplus with the United States narrowed from $4.7 billion in November to $4.4 billion in December. Exports to countries other than the United States rose 2.6 percent while imports from countries other than the United States were up 0.5 percent.

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.