- Trade balance narrowed slightly to $1.0 billion in September
- Both export and import volumes declined
- Data is volatile, but trade backdrop still looks lacklustre
The September international trade data leaves recent lackluster trends largely in place. The slightly narrower trade deficit was driven only by imports falling more than exports. That is hardly a positive for domestic demand. Equipment imports in particular have been soft – not a good sign for near-term business investment – although those actually edged slightly higher in volume terms in September.
Still, that net trade and business investment spending have been soft is not a surprise given signs of slower economic growth abroad and uncertainty tied to the US-China trade war. The tone of US-China negotiations has improved a little more than expected in recent weeks, making some sort of deal to pause tariff hikes, or even roll back some previously implemented hikes, looking possible if not yet likely. Today’s data won’t provide much comfort to the Bank of Canada, who has been closely watching external risks. But looking through monthly volatility, non-energy export volumes were still up slightly from a year ago in September, still just limping along but also not showing signs of imminent collapse. And the roughly 70% of the economy accounted for by the less-trade-sensitive services sector has continued to hum along. We think the most likely path for the economy going forward is further soft growth in net trade and the goods-sector, but continue to expect growth to stay positive on balance with support from service-sector growth.
