Weekly Economic Watch‏

Canada – In September, the merchandise trade deficit narrowed to C$0.4 billion, its smallest since March, from C$1.1 billion in August (revised from C$1.3 billion). This was much better than the C$1 billion deficit expected by consensus. The improvement was due to nominal exports (+1.8%) outpacing nominal imports (+0.2%). Exports were up in the categories of energy (+4.6%), autos and parts, and aircraft, among others. These gains more than offset lower exports in the categories of forestry, industrial machinery, and basic chemicals. The energy trade surplus rose to C$6.3 billion, its highest since 2008. The non-energy trade deficit fell to C$6.7 billion, though it remained close to its all-time record high. The trade surplus with the United States climbed to C$4.3 billion, its highest since February 2012. In real terms, exports increased 1.9% while imports decreased 0.5%.

The Canadian trade report for September was much better than anticipated. However, given the weak start to Q3, September’s gains seem too little too late. Indeed, in the end, real exports retreated 3.6% annualized in Q3 after advancing 3.6% in Q2. Real imports jumped 1.3% annualized after springing 2.8% the prior quarter. Hence, trade appears to have been a drag on the Canadian economy. Investment spending, too, seems to have remained soft in Q3 based on the import volumes of electronic equipment and industrial machinery (-9.5% and -0.2% annualized, respectively).

In October, the Teranet–National Bank National Composite House Price Index™ rose 3.1% year over year. Of the 11 metropolitan areas covered, four topped the national average: Calgary (6.7%), Hamilton (4.6%), Toronto (4.1%) and Quebec City (3.8%). Vancouver (2.7%), Edmonton (2.2%), Winnipeg (2.0%), Montreal and Ottawa-Gatineau (both 0.9%) lagged the average. Prices were down for an eighth straight month in Victoria (-0.5%) and for a third month running in Halifax (-0.7%). On a monthly basis, the Composite Index edged up 0.1%. Even if the12-month price comparison will continue to benefit from a favourable base effect through February 2014— home prices declined for six consecutive months after the introduction of more stringent homeownership rules in July 2012—the fact remains that the 0.1% monthly increase recorded in October was weaker than usual. Furthermore, prices failed to grow on a monthly basis in at least eight regions. This is a development usually associated with price weakness and suggests soft momentum.

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