CA: Merchandise Trade

Fri Jan 05 07:30:00 CST 2018

Consensus Actual Previous Revised
Level C$-1.4B C$-2.5B C$-1.5B C$-1.6B
Imports-M/M 5.7% -1.6%
Imports-Y/Y 8.1% 0.9% 1.3%
Exports-M/M 3.7% 2.7% 2.3%
Exports-Y/Y 0.0% 0.7% 1.0%

November merchandise trade deficit widened to C$2.5 billion from a deficit of C$1.6 billion as imports rose faster than exports. Monthly exports jumped 3.7 percent but imports climbed even faster at 5.8 percent. Exports were led by motor vehicles and parts, which were up 14.6 percent for the largest gain since March 2015. Volumes rose 13.4 percent. Elsewhere, consumer goods were up 7.4 percent thanks to a rise in pharmaceutical products, mainly to Italy. The surplus with the United States was nearly unchanged at C$3.3 billion but well down from C$4.7 billion a year earlier. Exports were up in eight of 11 sections.

There was a widespread increase in imports -- the strongest since July of 2009, occurring in 10 of the 11 sections. Volumes were up 5.0 percent and prices rose 0.7 percent. After two consecutive monthly decreases, imports of motor vehicles and parts rose 5.4 percent following planned shutdowns as well as work stoppages in September and October.

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.