CA: Merchandise Trade

Wed Sep 06 07:30:00 CDT 2017

Consensus Actual Previous Revised
Level C$-3.9B C$-3.0B C$-3.6B C$-3.8B
Imports-M/M -6.0% 0.3% 0.5%
Exports-M/M -4.9% -4.3% -5.0%
Imports-Y/Y 4.0% 10.4% 10.6%
Exports-Y/Y 2.2% 12.4% 12.2%

July merchandise trade deficit narrowed to C$3.0 billion from a C$3.8 billion deficit in June. Imports fell 6.0 percent and exports decreased 4.9 percent, both due mainly to the effect of widespread price decreases, while the Canadian dollar appreciated sharply relative to the American dollar in July.

Total imports declined 6.0 percent in July following seven consecutive monthly increases, with declines observed in all commodity sections. Prices were largely responsible for this decrease, falling 3.8 percent. This occurred as the Canadian dollar gained 3.6 cents US relative to the American dollar from June to July. The decrease in import values was partially attributable to aircraft and other transportation equipment and parts, as well as motor vehicles and parts. On the year, imports rose 4.0 percent.

After posting a 5.0 percent decline in June, total exports fell 4.9 percent in July with decreases observed in 9 of 11 sections. Prices decreased 3.9 percent, while volumes were down 1.1 percent. Motor vehicles and parts, as well as aircraft and other transportation equipment and parts contributed the most to the decline. In July, exports excluding energy products were down 5.2 percent. On the year total exports were up 2.2 percent.

Exports of motor vehicles and parts fell 9.6 percent, the strongest decrease since August 2014. Exports of passenger cars and light trucks were mostly responsible for the decline. As was the case with imports of motor vehicle engines and motor vehicle parts, longer planned closures in the automotive manufacturing industry in July were behind the decrease. Overall, prices were down 4.5 percent and volumes decreased by 5.4 percent.

Imports from the United States decreased 6.7 percent, led by lower aircraft imports. Exports to the United States were down 3.2 percent, mainly on lower exports of passenger cars and light trucks. As a result, Canada's trade surplus with the United States widened from C$1.8 billion in June to C$2.9 billion in July.

Exports to countries other than the United States declined 10.0 percent with the United Kingdom (unwrought gold), Japan (copper, canola and seafood) and Saudi Arabia (personal transportation equipment) posting the largest decreases. Imports from countries other than the United States were down 4.7 percent, with Brazil (bauxite) and Mexico (motor vehicle parts) contributing the most to this decrease. Consequently, Canada's trade deficit with countries other than the United States rose from $5.6 billion in June to $5.9 billion in July.

In real (or volume) terms, imports decreased 2.3 percent and exports were down 1.1 percent in July. Consequently, Canada's trade deficit in real terms narrowed from C$891 million in June to C$338 million in July.

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.