Highlights:
- The July trade deficit unexpectedly shrank to $0.1 billion from $0.7 billion in June. The July shortfall was the smallest since a small surplus was posted in December 2016. Markets expected a $1 billion deficit in July.
- Exports rose 0.8% in nominal terms but fell 0.8% in volume terms. Import volumes declined 1.6% in volume terms but despite an increase in equipment imports that is a good sign for Q3 Canadian business investment spending.
- Non-energy export volumes inched lower on a month-over-month basis in July but were still up 4% from a year ago.
Our Take:
A 0.8% rise in July exports was entirely explained by a big rise in energy prices but the 0.8% decline in export volumes still retraced less than half of a big jump in June. Statistics Canada reported that exports to the U.S. of steel products targeted by new 25% U.S. import tariffs beginning in June bounced back 16% in July after falling 36% the earlier month. New retaliatory Canadian import tariffs starting in July also seem to have had a significant impact on trade in targeted products. Canadian imports from the U.S. of steel products targeted fell 40% after jumping 33% in June. Looking through the volatility, the Canada-U.S. trade balance in products directly targeted in the most recent trade spat appears to be little changed in July from May (before U.S. tariffs were first implemented in June.)
On balance, the Canadian trade data has looked somewhat better in recent months. Non-energy export volumes slipped lower in July but were up 4% from a year ago. The monthly data is volatile, so a few months of encouraging data doesn’t yet make a trend — and risks around Canada’s trade relationship with the U.S. remain. It could also be, though, that Canadian exports are finally starting to get at least a modest lift from stronger global trade flows and an improved U.S. industrial sector.
