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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.
Canada ranked high in several areas, including investor protection and corporate governance, Ottawa's credit rating, education, the lack of red tape for starting a business, and the availability of financial services. Canada ranked first for the soundness of its banks, no surprise given that the financial sector is held out as a model to the world.
But the country also lagged in some areas, including the business costs related to terrorism, mobile phone subscriptions and, a frequent complaint for business, taxes. In fact, of 15 items deemed the most problematic for doing business, respondents to a survey cited tax rates as the worst. Rounding out the top of that list were : Access to financing, inefficient government bureaucracy, tax regulations and restrictive labour regulations.
Of the U.S., the group said that "in addition to the macroeconomic imbalances that have been building up over time, there has been a weakening of the United States' public and private institutions, as well as lingering concerns about the state of its financial markets."
- Canada slips in competitiveness ranking
- Read the World Economic Forum Report
- Read the section on Canada
Housing market loses more ground The numbers continue to support the trend: Canada's real estate market is softening. Housing starts in Canada fell in August to a seasonally-adjusted annual rate of 183,000, Canada Mortgage and Housing Corp. said today. That's the fourth month of decline. The agency also revised July's numbers down, meaning that month over month, starts fell 3 per cent. In urban areas, housing starts fell 3.7 per cent. Construction on singles sank 3.6 per cent, while work on multiple units such as condos tumbled 3.7 per cent.
"Single-unit starts are now 32 per cent below their spring peak, a sharp decline for this more stable sector that best reflects underlying residential construction trends," said BMO Nesbitt Burns economist Robert Kavcic. "Still, despite the decline, activity in this sector remains 50 per cent above the recession low. Meantime, aside from month-to-month volatility, multi-unit starts continue to grind higher and are now 84 per cent above their recession low. Note that the supply of newly completed and unoccupied multiples sat at the highest level since 1992 in July, with large recent increases in Toronto, Vancouver and Calgary."
Kavcic and other observers expects starts to continue to decline this year.
"Cooling housing markets are a big part of why domestic economic activity is slowing in Canada," said Toronto-Dominion Bank senior economist Pascal Gauthier. "This was reflected in the existing (resale) home market. With the typically lagged spillover effect into the new home market, homebuilding activity is now easing at an orderly pace."
Separately today, Statistics Canada reported the first dip in prices for new homes in more than a year. The drop in July was small, just 0.1 per cent, pulled down by Vancouver and the Ontario centres of Thunder Bay, Windsor and London. But the federal statistics gathering agency also noted the introduction of the harmonized sales tax in B.C. and Ontario, which came into effect at the beginning of July. And, it said, "as value added taxes are conceptually excluded from the index, this change may cause negative monthly variations in the index for some metropolitan regions in Ontario and British Columbia during the implementation period of the tax."
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OECD sees recovery slowing The global economic recovery is slowing, the OECD warned today as it urged governments to keep stimulus in place and even up the ante if warranted. In a new forecast, the Organization for Economic Co-operation and Development said economic growth in the G7 economies could slow to an annualized rate of about 1.5 per cent in the second half of this year. Like many other forecasters, the OECD pointed to the extreme uncertainty in the global economy.
"If the ongoing slowdown is temporary, the appropriate policy response would be to postpone the withdrawal of monetary support for a few months while maintaining planned budget consolidation to address unsustainable fiscal positions," the group said. "... On the other hand, if the slowdown reflects longer-lasting forces bearing down on activity, additional monetary stimulus might be warranted in the form of quantitative easing and commitment to close-to-zero policy interest rates for a long period."
The OECD's call comes just one day after the Bank of Canada raised its benchmark interest rate for the third time since the recession ended. But the central bank also left its options open, citing, as did the OECD, the uncertainty in global markets.
- OECD warns global recovery slowing
- Read the OECD report
- Carney's choice: Keep them guessing
- U.S. still faces double-dip threat: Roubini
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- Basel accord ratchets up banks' capital reserve levels
- Rob Carrick: Why rising interest rates haven't flattened the housing market
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