CA: Merchandise Trade

Fri Nov 03 07:30:00 CDT 2017

Consensus Actual Previous Revised
Level C$-3.0B C$-3.2B C$-3.4B C$-3.2B
Imports-M/M -0.3% 0% -0.4%
Imports-Y/Y -2.0% 3.0% 2.7%
Exports-M/M -0.3% -1.0% -0.7%
Exports-Y/Y 0.3% -0.2% -0.1%

September merchandise trade deficit was C$3.2 billion and was down sharply in the third quarter, all largely on weaker car & light truck sales to the United States. For September, exports were down 0.3 percent on lower passenger car & light truck exports. Imports were also down 0.3 percent on lower prices. The third quarter deficit with the world sharply increased to C$9.4 billion from C$5.5 billion in the second quarter. A factor in the export declines was the rise in strength of the Canadian dollar, by 5.5 US cents in the third quarter and by 2.1 US cents in September.

Exports to the United States fell 1.2 percent in September on the lower sales of cars and light trucks while imports from the U.S. rose 0.4 percent. Canada's trade surplus with the United States narrowed from C$2.7 billion in August to C$2.2 billion in September.

Motor vehicles & parts fell a monthly 10.6 percent and were down 17.2 percent on the year. This decline to the lowest level since February 2015 was largely offset by energy products rising 7.2 percent and 25.7 percent on the year. Exports of passenger cars & light trucks were the main negative factor in the sector, falling 15.6 percent. Work stoppages in the automotive industry were said to be responsible for the decline in September, and "changes to certain models for the American market."

Canada's real trade balance deteriorated sharply in the third quarter, to a C$3.4 billion deficit from a C$0.3 billion surplus in the second. In September, the 0.3 percent decline in imports was led by a 4.6 percent decline in electronic & electrical equipment. Imports of consumer goods fell 1.9 percent, a fifth straight monthly decline.

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.