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Merchandise Trade Analysis – July 2016

Export volumes surge in July; trade deficit narrows

For the first time in what seems like a long while, Canada received a bit of unambiguously positive economic news with the release of July's trade numbers. July ended up being an excellent month for Canadian exporters. Foreign sales increased by 3.4 per cent over June - the largest single-month increase since December. And at a total value of $42.7 billion, exports were at their highest level since February.

Canadian Trade Summary
  May-16 Jun-16 Jul-16
Value ($billions)
Exports 41.2 41.3 42.7
Imports 44.9 45.2 45.2
Trade Balance -3.6 -4.0 -2.5
       
Percentage change
Export prices 1.6 0.4 0.7
Export volumes -1.8 -1.6 3.8
Import prices 1.0 0.2 1.6
Import volumes -0.3 0.4 -1.1

The increase in exports was largely fuelled by a surge in the volume of goods sold, rather than through price effects. Export volumes for July were up 3.8 per cent - the largest increase in shipments since May 2014. Exporters also received a better sticker price for their products, as the value of goods sold increased by 0.7 per cent.

Cdn Merchandise Trade

Meanwhile, imports into Canada were once again essentially flat, falling by just 0.1 per cent to hit $45.2 billion. There has been little movement in imports since April. Unlike exports, however, import volumes are down as Canadians find they are paying more to buy foreign goods. Import volumes were down 1.1 per cent in July, while prices were up 1.6 per cent. After falling earlier in the year on the back of a stronger Canadian dollar, import prices have now risen by 2.8 per cent since April.

Export volumes surge ahead in July

This combination of surging exports and tepid imports was good news for those worried about Canada's terms of trade. When June's trade numbers were released, much was made of the record $3.6 billion trade deficit for the month. July's trade numbers revised that figure, making it even worse - $4.0 billion. However, things look much less worrying today. The monthly trade deficit dropped to just under $2.5 billion in July - still significant, but the smallest it has been since March.

Canada's International Trade Balance

While July's numbers were solid, 2016 is still shaping up to be a poor year for exports. Even with that increase, exports are tracking well below 2015 and 2014 levels. Through seven months, exports are down 2.5 per cent compared to the same period last year.

Export volumes surge ahead in July

Part of the reason July's trade numbers were unambiguously positive was that the growth in exports was not driven by any one sector but spread across a wide range of product types. Of the eleven broad product categories, nine were higher and the declines in the other two - energy products and consumer goods - were negligible. Six separate product groups recorded growth in excess of 4 per cent, led by metals and non-metallic minerals (9.7 per cent) and aerospace products (9.6 per cent). There was also a welcome turnaround in the motor vehicles sector. Autos and parts had been a key driver of exports in late 2015, but had fallen off through much of this year. July saw that trend finally turn around, with a 6.2 per cent increase in shipments abroad.

Much of July's increase in exports came in higher sales to the United States. Overall exports were up $1.4 billion compared to June, with the US contributing more than $1.0 billion to that increase. Exports to the United Kingdom were also higher ($381 billion), with smaller increases in exports to China, Indonesia and Japan. Offsetting those gains, in part, were lower sales to Germany, South Korea, Switzerland and India.

On the import side, Canadians bought fewer consumer goods, electronics, and motor vehicles and parts. However, purchases of raw metals and minerals surged in July. There was also an increase in imports of energy products, as well as aerospace parts.

 

Canadian Trade Summary
  Mar-16 Apr-16 May-16
Value ($billions)
Exports 41.3 41.5 41.1
Imports 44.4 44.8 44.4
Trade Balance -3.1 -3.3 -3.3
       
Percentage change
Export prices -1.3 -0.1 1.9
Export volumes -3.3 -0.5 -2.3
Import prices -2.0 0.0 1.0
Import volumes -0.4 0.6 -1.0

The story was much the same on the import side as well. Foreign sales into Canada were down 0.8 per cent in May and, like exports, have declined in three of the four months since hitting a new high in January. However, the decline in imports since January has been less pronounced and, as a result, Canada's trade balance is plumbing new depths. The trade deficit in May came in at $3.3 billion - effectively unchanged since hitting a new record level in April.

With the decline in both imports and exports since January, Canada's overall trade numbers for 2016 to date are decidedly weak. Through five months, exports are 0.6 per cent below 2015 levels, while imports are down 0.1 per cent.

Industry-level exports were mostly to the down side in May, with eight of the eleven major product categories posting declines. Leading the way were metals and metal products, where a sharp drop in the volume of precious metals shipments brought metals and minerals exports down 5.4 per cent compared to April. Machinery exports were also down significantly, at 4.9 per cent, while lower wheat sales drove agriculture and food products down 4.2 per cent.

On the positive side, there were modest increases in exports of aerospace and forest products. However, by far the largest growth was in sales of energy products, which jumped 7.1 per cent over April on the strength of higher oil prices. It is worth noting that energy supply disruptions from the Ft. McMurray wildfires did not affect May’s export volumes; that impact may appear in June data.

Although total exports were down in May, there was a strong uptick in sales to the United States which rose by more than $1.1 billion (3.6 per cent) compared to April. That increase is reason for optimism that Canada-US trade has turned the corner after a dismal start to the year. There were also comparatively small gains in exports to the Netherlands, Italy and Taiwan.

At the other end of the spectrum, there was a sharp decline in exports to the United Kingdom, which fell by $722 million (45.4 per cent). While it is tempting to attribute that decline to the results of the recent Brexit vote, these data precede the referendum and since markets had expected a "stay" victory, there is no reason to believe the decline is the result of pre-vote uncertainty. In addition, much of the decline in exports to the UK was tied to the drop in gold sales, mentioned above - the UK is by far Canada's most important export destination for gold producers.

Cda top growing export markets

On the import side, May’s declines were concentrated in four sectors. Aerospace imports had spiked in April, but returned to more normal levels in May. Imports of machinery and equipment were also lower, as were purchases of foreign raw metals and minerals, as well as their semi-finished and finished products. Meanwhile, imports of energy and chemical products were higher. 


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