Canada's Merchandise Trade Surplus $66.4 Billion in March

Canada's merchandise trade surplus improved dramatically for the third straight month in March 2008. The annualized surplus is now back up to $66.4 CAD billion. That is the highest level since May 2007, ten months ago.

In December 2007, the annualized surplus had been as low as $27.5 CAD billion. The reason for the improvement has been largely due to the price increase for oil. The world price of oil has been climbing over the last several months and has just reached a high of $126 USD per barrel. The Canadian dollar, which remains just about at parity with the U.S. dollar, continues to receive upward support from high-priced oil.

Crude Oil Exports +50%, but almost all due to Price Hikes

Current dollar exports in Canada were +1.6% month to month in March, but this was actually a -2.1% performance in constant dollars. On a year-to-date basis, exports were -1.7% in current dollars and -5.7% in constant dollars.

The most telling statistic is that crude oil exports were nearly +50% year to date on a current dollar basis, but only +5.0% on a constant dollar basis.

In the latest month, total imports were -0.3% in current dollar terms and -2.4% in constant dollar terms versus February. However, year to date, they were -1.1% and +5.0% respectively. The Canadian economy is continuing to pull in imports, which is a sign of ongoing resilience from retail spending and homebuilding through this year's first quarter.

Struggling in Auto and Forestry Exports

There are two export areas where Canada is particularly struggling — forestry products (-20.7% year to date) and automotive products (-25.3%). The first is due to the housing market collapse in the United States and the second is the fallout from weak car-buying demand south of the border. The U.S. consumer is under assault from jobs weakness and high gasoline prices, as well as the psychological effect of lower house prices.