Merchandise Trade Analysis - November 2017

Trade deficit widens in November in spite of strong export growth

Canadian exports were up strongly in November, marking the second consecutive month of solid gains after a weak summer quarter. Led by a recovery in deliveries of motor vehicles and parts, total international sales reached $46.2 billion for the month, rising by about 3.7 per cent compared to October.

Those gains were eclipsed, however, by an even larger spike in imports coming into Canada. Canadians purchases of goods from the United States and elsewhere soared in November, rising by 5.8 per cent to hit $48.7 billion for the month. As a result, Canada's trade balance widened once again after narrowing briefly in October. The trade deficit in November came in at estimated $2.5 billion compared to a revised $1.6 billion the previous month.

As in October, November's trade gains were driven by a combination of price and volume effects. For their part, Canadian exporters were able to increase their sales volumes by about 0.6 per cent, but also received notably higher prices for their goods; average export prices jumped by 1.4 per cent compared to the previous month. Most of the volume-based gains came in motor vehicles and consumer goods, while price increases were relatively widespread.

On the import side, the volume of goods entering Canada jumped by 5.0 per cent in November, while the sticker price of those goods increased by an average of 1.2 per cent. Gains in both import prices and volumes were widely distributed across a wide range of product types.

With only one month to go before preliminary data are in for the year, 2017 has been a volatile year for Canadian exporters. The first half of the year was characterized by strong year-over-year gains, while the second half of 2017 has so far seen only a modest improvement over 2016. From January to June, exports were 10.2 per cent higher than last year, but have increased by just 0.7 per cent from July to November.

As noted above, most of Canada's export growth in November came in two product categories: motor vehicles and parts; and consumer goods. Auto and parts exports jumped by 14.6 per cent ($978 million), buoyed by a return to normal production levels after a labour disruption affected output in September and October. Meanwhile, a spike in exports of medicines, pharmaceutical products, and a range of miscellaneous goods all contributed to a 7.4 per cent increase ($412 million) in consumer goods exports in November. Exports of forestry products, energy products, electronics and electrical equipment, and aerospace vehicles and parts were also higher that month.

For the second month in a row, the increase in exports was almost entirely driven by higher sales to the United States. After falling dramatically from May to September, US-bound exports are recovering quickly, rising by 5.4 per cent in November after a (revised) 3.9 per cent increase in October. Exports to China were also up considerably (8.0 per cent), as were deliveries to Spain, Italy and Brazil. However, exports to most of Canada's other major destinations like Japan, the UK, Mexico and South Korea were down in November.

Turning to Canadian imports, the 5.8 per cent increase in November was the result of remarkably widespread gains across the range of product types. Of the eleven major product categories, all but one were higher in November, as imports of energy products into Canada dipped slightly that month. Generally speaking, import growth was stronger for industrial and consumer goods compared to resource-based and intermediate products. 

Most of those goods came from the United States as imports from that country rose by 6.5 per cent ($1.9 billion). Although much smaller in dollar-value terms, there was also a considerable increase in imports from China, Japan and Saudi Arabia in November. Meanwhile, imports from the EU were down slightly compared to October.

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