- The merchandise trade surplus was $0.8 billion in January, up from a revised $0.4 billion surplus (was $0.9 billion) in December
- Exports rose 0.5% (despite a modest dip in energy exports). Imports dipped 0.3%, but entirely due to lower prices.
Although encouraging, the gain in exports in January was not particularly broadly based with declines in 6 of 11 subsectors. The nominal increase was led by higher exports of motor vehicles and parts (up 7.7%) and a 12.8% jump in farm, fishing and intermediate food products (boosted by a 38.4% jump in Canola exports.) The decline in imports was led by a 5.5% decline in metal and non-metallic mineral product purchases that Statistics Canada noted was largely a result of lower gold imports. Industrial machinery imports (an important indicator of domestic investment trends) declined 4.3% but that only partially retraced a 7.2% jump in December. Motor vehicle imports increased 3.6% to provide the main source of partial offset.
In volume terms, exports rose 0.8%, although with a somewhat stronger increase of close to 2% in non-energy exports. Import volumes rose 1.1% (significantly stronger than the 0.3% nominal decline) to leave, on balance, a less favourable report in terms of the real trade balance.
Our Take:
Non-energy export volumes rebounded 2% in January following a similar-sized drop in December. The measure was still down about 2% from a year ago (albeit with much of that year-over-year decline due to an ultimately temporary surge in non-energy export volumes from November through January of last year). The data is volatile and today’s report does not change our view that underlying export volumes remain on a modestly positive upward path. Perhaps more encouraging is that imports of machinery, on balance, are still up significantly over December and January (January industrial machinery imports are 12%, at an annualized rate, above their Q4 average), potentially pointing to stronger M&E investment early in 2017. In terms of near-term GDP implications, the deterioration in the volume trade balance in January (led by higher import volumes) remains consistent with our expectation that net trade will subtract about a percentage point from growth in Q1/17 after adding an average 3.2 percentage points per quarter over the second half of 2016. That remains consistent with our call for GDP growth to slow to a (still above-trend) 1.9% rate in Q1 after a solid, and stronger-than-expected, 2.6% Q4/16 gain.
