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The Halifax port is seen in this file photo.Sandor Fizli/The Globe and Mail

The latest stumble in Canada's trade performance is a harsh reminder for anyone who has grown optimistic about the national economy: We may have turned a corner, but there are still plenty of potholes around the bend. The journey remains slow, bumpy and occasionally outright teeth-rattling.

Statistics Canada reported on Tuesday that the Canadian trade deficit ballooned to $2.5-billion in August, from a revised $817-million shortfall in July (which itself was a downgrade from the original $593-million). The trade slump marks a return to the unsightly $2-billion-plus deficits that dominated the spring – just when much stronger performances earlier in the summer had raised hopes that those days were behind us.

For an economy that has consistently placed its faith in an export rebound to restore itself to health, it's enough to make you question your religion.

Exports slumped 3.6 per cent – largely because of a renewed slump in energy prices, but also on a 0.6-per-cent drop in overall export volumes. Imports rose 0.2 per cent on higher prices, but on a volume basis, they, too, were down (albeit a thin 0.1 per cent). Both at home and abroad, demand took an August holiday.

To put in context, the August slump came after a high-octane run in June and July that produced combined growth of more than 8 per cent. That's a ridiculous 50 per cent on an annualized basis – a pace that was, obviously, unsustainable. One month of giving a bit of that back, especially when it was largely price-driven, is hardly unreasonable, nor particularly surprising.

Economists were quick to remind us in the wake of the report that this one setback on the trade front does not derail the generally positive story that the earlier upturns had built up for third-quarter economic growth. They still believe that the gross domestic product expanded at an annualized pace of 2.5 to 3 per cent, a strong turnaround from the small GDP declines in the first and second quarters – and that the improvement in net exports will contribute the bulk of that growth.

Still, August represents Canada's 11th straight monthly trade deficit, during which the cumulative gap between exports and imports has reached nearly $20-billion, including $17.4-billion in the current calendar year alone. It's a reminder that the energy sector's drag on the Canadian trade ledger remains severe. And even with the support of a sharply lower Canadian dollar, we're still a long way from having other export segments make up the difference. Even if you exclude energy, half of the other 10 major trade sectors saw their exports shrink in August.

"Although today's results don't imply a disaster for monthly GDP … we are again reminded that the benefits of a cheaper Canadian dollar will take time to be fully felt," Canadian Imperial Bank of Commerce economist Nick Exarhos said in a research note.

Looking for silver linings, Canada's imports of industrial machinery and equipment rose for the second straight month. This is a key indicator of business investment in its productive facilities, a critical component for future growth. Despite a further slide in the Canadian dollar in July and August that would typically tend to discourage these kinds of imported equipment purchases, the numbers suggest that at least a tentative pickup in business investment may be afoot, in what has been an acutely difficult year on that front.

And the auto sector, which had delivered a surge in exports earlier in the summer thanks to taking shorter-than-usual seasonal maintenance shutdowns and returning to full speed retooling restarts, generated another 3.1-per-cent rise in exports in August, defying suggestions that its earlier gains were transitory one-offs.

But if that was evidence that rising demand from a broad strengthening of the U.S. economy is kicking in, there were a couple of strong rebuttals: A 3-per-cent drop in machinery-and-equipment exports and an 8-per-cent slump in consumer-product exports. Over all, exports to the United States fell 3 per cent in the month.

There is little doubt that the U.S. economy stumbled a bit in August; previous data on employment, trade and factory orders had already suggested that. Maybe it all stemmed from the financial-market jitters that dominated the month, and it will all prove temporary now that those negative headlines have calmed down.

Canada will have to hope so. Because, without sustained momentum from trade, the third-quarter growth spurt will look like more the anomaly than the trend.

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