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Canada's trade deficit at record The faltering recovery in the United States is taking its toll on Canada. Canadian exports to the U.S. dipped again in July, falling 2.2 per cent, while imports from south of the border rose 2.9 per cent. That narrowed Canada's surplus with its biggest partner to $1.2-billion, half of the $2.4-billion surplus a month earlier, Statistics Canada said today. "Canada's trade surplus with the United States has been declining since December 2009, as exports to the United States have fallen by 2.2 per cent and imports have grown by 14.1 per cent since then," the agency said.
All told, overall exports from Canada dipped 0.7 per cent in July while imports increased 2 per cent. That left the country with a record overall trade deficit of $2.7-billion.
"The deep deterioration in Canada's trade picture in recent months is Exhibit 'A' on how a cooling U.S. economy hits home," said BMO Nesbitt Burns deputy chief economist Douglas Porter. "The trade balance has sagged by nearly $3-billion in the past three months alone as the gap between solid imports and stumbling exports has lurched wider."
Exports to other countries rose 3.7 per cent, primarily because of higher shipments to the EU.
"The continued widening in the trade deficit speaks volumes about the fractionalization in the global economic recovery," said Toronto-Dominion Bank economist Francis Fong. "In particular, the 2.2-per-cent decline in exports headed to the U.S. is a telltale sign that the economic recovery there is weakening, while continued growth in imports suggests that the Canadian domestic economy is in better shape. In sum, the impact of a widening trade deficit will be a drag on overall real GDP growth, especially going forward given our forecast for a slow, laborious economic recovery in the United States."
U.S. trade deficit narrows While Canada's trade deficit ballooned, the U.S. deficit narrowed in July for the best showing in months. The U.S. deficit fell to $42.8-billion, the U.S. Commerce Department said today. That's better than expected as exports rose 1.8 per cent and imports fell 2.1 per cent.
On the key issue of trade between the U.S. and China, an area of extreme tension given the pressure on Beijing to allow its currency to rise, the deficit with China finally dipped, though not significantly. "That suggests there could have been some truth to the theory that Chinese exporters were rushing to beat the expiry of export tax credits," said Paul Dales, U.S. economist at Capital Economics in Toronto. "Nonetheless, July's bilateral deficit with China was still the second highest on record. With conventional monetary and fiscal policy almost all tapped-out, the temptation for policymakers to turn to trade policy as an alternative means of boosting the economy remains large."
What to watch for in tomorrow's jobs report Statistics Canada's July jobs report knocked everyone for a loop because it showed some 65,000 jobs in the education sector were wiped out, the biggest decline on records dating back to 1976. But economists note that this loss of jobs among teachers and administrative and support staff in July has been annual event for a few years, and that those positions reappear in August or September. That's because the nature of employment in the sector has changed over the past few years, with more use of temporary and shorter contracts.
This phenomenon of course led to suggestions that the labour market wasn't really as weak as it appeared in July, when the jobless rate inched up to 8 per cent from 7.9 per cent.
So all eyes are tomorrow's report for August, and observers believe at least several thousand of those jobs will return, leading to overall employment gains of between 25,000 and 50,000 new positions. "Note that in two of the last three years, the July drops in education employment were reversed in the subsequent month," said CIBC World Markets economist Krishen Rangasamy. "We're anticipating a reversal this year as well, albeit to a less extent, given the later start to the school year."
Douglas Porter, deputy chief economist at BMO Nesbitt Burns, said that over the past four years, the teaching jobs came back twice in August and twice in September.
Statistics Canada releases the report at 7 a.m. ET.
Canada loses ground in competitiveness rankings Canada has slipped a notch in a respected ranking of global competitiveness. Canada slipped to 10th place in the annual study by the World Economic Forum, down from 9th spot last year, while the United States fell two notches to fourth. Leading the rankings this year are Switzerland, Sweden and Singapore, followed by the U.S., Germany, Japan, Finland, the Netherlands and Denmark. Notable in the study, too, is China's ascension to number 27 from number 29.