Canada's trade balance swung to a surplus of $710-million in September, erasing August's deficit, as a bounce-back in the auto sector fuelled a resumption of the country's encouraging upswing in exports.
The September surplus was much better than economists' consensus expectation of a deficit in the $300-million range. It also marked a turnaround of almost $1.2-billion from August's revised deficit of $463-million (which Statistics Canada originally reported as $610-million).
Economists were encouraged by a 1.1-per-cent rise in exports, which came entirely on stronger volumes of shipments, as export prices actually fell 0.4 per cent in the month, amid falling commodity prices. Export volumes were up 1.6 per cent.
"The Canadian trade report was much better than expected, not just on the headline but also in the details, with export gains observed in most sectors," Krishen Rangasamy, senior economist at National Bank of Canada, said in a research note. "The resurgent U.S. economy, coupled with past Canadian dollar depreciation, are clearly helping boost the export sector."
Year-to-date exports are now up 10.4 per cent compared with the same period last year, outpacing a 7.4-per-cent rise in imports. The country turned in a cumulative trade surplus of $5.3-billion for the first nine months of the year, an impressive turnaround from the $5-billion deficit over the same period last year.
"The less-than-great news is that almost all of the improvement so far this year has come from energy trade – in fact, the surplus in energy goods is up more than $15-billion from year-ago levels so far in 2014," Douglas Porter, chief economist at Bank of Montreal, said in a research report.
"Given the deep dive in oil prices in the past two months, it looks like a matter of time before that groaning surplus begins to fade, even with production marching higher. On the flip side, non-energy trade remains mired in a deep deficit (almost precisely offsetting the energy surplus) – however, it appears that the non-energy gap may finally be turning the corner, after a near-continuous deterioration over the past decade," he wrote.
In August, exports of motor vehicles and parts jumped 6 per cent, rebounding from an 11.5-per-cent slump in August, marked by summer maintenance shutdowns. Exports of consumer goods rose 6.6 per cent, Both numbers are evidence of growing consumer demand, as the U.S. economy gains momentum.
But total exports to the United States (which accounts for about three-quarters of Canadian exports) rose only a modest 0.8 per cent in the month, lagging the overall growth. Exports to Japan and the European Union jumped 8.3 per cent and 6.8 per cent, respectively, while exports to other Organization for Economic Co-operation and Development (OECD) countries gained 4.8 per cent.
Testifying before the House of Commons finance committee, Bank of Canada Governor Stephen Poloz said the September trade report is "adding to a sense of encouragement that pieces are coming together." He said he's encouraged that exporters are starting to look beyond the U.S. market. But he said companies need to see sustained momentum before investing in new export capacity.
Imports fell 1.5 per cent, reversing a strong August, as volumes dropped 1 per cent and prices declined 0.6 per cent. Much of the declines centred on energy products, which tumbled 19.4 per cent on lower prices and volumes. But Statscan attributed the sharp decline to maintenance shutdowns at Canadian refineries, suggesting the big downturn will quickly be reversed.
Mr. Rangasamy noted that for the third quarter of the year, export volumes grew at an annualized pace of 10.4 per cent, while imports grew 6.6 per cent. As a result, he said, trade looks to have been a positive contributor to third-quarter gross domestic product growth. But even with trade's solid contribution, economists believe the economy grew at an annualized pace of only about 2 per cent in the quarter, well below the second quarter's 3.1 per cent.
"The strengthening in the external demand backdrop does suggest that the slowing in Q3 [third-quarter] growth will prove temporary," said Royal Bank of Canada economist Nathan Janzen.