CA: Merchandise Trade

Thu Apr 05 07:30:00 CDT 2018

Consensus Actual Previous Revised
Level C$-2.2B C$-2.7B C$-1.9B C$-1.9B
Imports-M/M 1.9% -4.3% -4.3%
Imports-Y/Y 3.5% 2.0% 1.8%
Exports-M/M 0.4% -2.1% -2.3%
Exports-Y/Y 1.5% -1.5% -1.7%

February's merchandise trade deficit widened to C$2.7 billion from a C$1.9 billion deficit in January. Imports rose a monthly 1.9 percent, mainly due to higher imports of energy products. Exports increased 0.4 percent, primarily on higher exports of passenger cars and light trucks. In volume terms, imports rose 1.9 percent and exports were up 0.6 percent.

Following a 4.3 percent decline in January, total imports were up 1.9 percent with increases in 8 of 11 sections. Higher imports of energy products and of motor vehicles and parts were partially offset by lower imports of gold. On the year, total imports increased 3.5 percent.

Imports of energy products rose 15.4 percent, the highest level since November 2014. For the section as a whole, volumes rose 14.5 percent and prices were up 0.8 percent. Following atypical plant shutdowns in January, imports of motor vehicles and parts partially rebounded in February, up 1.7 percent on higher imports of motor vehicle engines and motor vehicle parts.

Total exports edged up 0.4 percent with increases in exports of motor vehicles and parts, and aircraft and other transportation equipment and parts. These were largely offset by lower exports of farm, fishing and intermediate food products, and of metal and non-metallic mineral products. Total exports were up 1.5 percent from a year ago. Exports excluding energy products were up 0.7 percent. Exports of motor vehicles and parts led the increase mostly on higher exports of passenger cars and light trucks. Aircraft and other transportation equipment and parts also contributed to the overall increase. Partially offsetting the overall increase were lower exports of farm, fishing and intermediate food products.

Following two consecutive monthly decreases, trade with the United States rose in February. Imports from the United States were up 3.3 percent, mostly on higher imports of aircraft. Exports to the United States increased 1.9 percent, mainly on higher exports of passenger cars and light trucks. As a result, Canada's trade surplus with the United States narrowed from C$2.9 billion in January to C$2.6 billion in February.

Exports to countries other than the United States fell 4.2 percent to C$11.3 billion, mainly on lower exports to the United Kingdom (unwrought gold). Imports from countries other than the United States also declined, down 0.6 percent to C$16.6 billion. Lower imports of gold from the Dominican Republic and Argentina were partially offset by higher imports of passenger cars and light trucks from India and Mexico.

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.