Canada: November Trade Report Disappoints

– The November trade report was disappointing as the anticipated rebound in auto exports was offset by weakness elsewhere. The merchandise trade deficit widened to CAD 2 billion from a revised CAD 0.6 billion the month before (initially reported as a CAD 0.2 billion deficit).

Exports fell 0.9% as increases in revenue from sales of autos, aircraft and basic industrial goods were outweighed by declines in most other categories, including a 1.2% drop in the energy sector. Imports swelled 2.7% with broad-based gains more than compensating for a 3.7% retreat in the energy sector. In real terms, exports were up just 0.1% (after slumping 1.6% in October) while imports soared 2.5%, more than reversing the prior month's pull-back.

In December, housing starts sagged 1.7% to a seasonally adjusted annualized rate of 198K units from an upwardly revised 201.4K the prior month. This fell close to consensus expectations. Urban starts declined as a 4.7% decrease in multiples more than offset an 8.6% increase in singles. While up in Ontario (+33.4%), starts were down in Quebec (-11.8%), B.C. (-8.2%), and the Prairie Provinces (-23.9%).

With this fourth consecutive drop, starts sank to their lowest point since November 2011. Tighter mortgage rules and a soft economy are clearly having a negative impact on residential construction. For Q4 as a whole, Canadian housing starts contracted at an annualized pace of roughly 30%, their worst showing since 2009.

In November, building permits slid 17.9% in dollar terms, more than reversing the 15.9% increase a month earlier. The November decline was due mostly to the nonresidential sector (-30.6%), although residential permits were down as well (-6.8%). In real terms, the number of residential permit applications fell 9.6% with both multiples and singles regressing (-13.7% and -2.7%, respectively). The drop in real residential permit applications suggests further weakness ahead for the sector.

In other news, Canada's Ivey PMI rebounded to a seasonally adjusted 52.8 in December from 47.5 in November.

United States – In November, the trade deficit widened to US$48.7 billion from a barely revised USD 42.1 billion the prior month. The deterioration came from imports (+3.8%) growing faster than exports (+1%). The surge in imports was not energy related (crude oil imports actually slipped 6.4% in real terms). Instead, imports of consumer goods soared 11.2% after sinking 8% the previous month.

In particular, imports of cellular phones sprang by USD 1.81 billion or 27.4% in the month. Imports of motor vehicles and parts (up USD 1.5billion or 6.3%) contributed to widen the trade deficit as well. In real terms, imports progressed 5.5% while exports advanced 2.2%. In December, the U.S. National Federation of Independent Business (NFIB) Index rose marginally to 88, regaining only part of the ground lost the month before. The reading was the second lowest since March 2010.

The sub-index gauging expectations for the economy held steady at -35, its lowest mark on record. Expectations about future sales improved marginally to -2 from -5. Survey participants felt credit access deteriorated for a third month in a row. Inflationary pressures should remain minimal as small businesses did not plan to raise prices or wages. Interestingly, employment intentions deteriorated to their worst level since March.

With the fiscal cliff looming through the end of 2012, it was not surprising that confidence among small businesses remained weak in December. The NFIB index averaged 89.5 in 2012Q4, its worst showing since 2011Q3 when the last debt-ceiling showdown occurred!

It is unclear how small businesses will react to the deal struck in January given the continued uncertainty over sequestration. However, we expect the overall NFIB index to rise thanks in part to the extension of income-tax cuts for those making less than US$400K annually and of accelerated depreciation for capital investments.

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