Canada's trade deficit narrows in July as exports climb

Canada's trade deficit with the rest of the world narrowed to $2.5 billion in July as Canada shipped more goods to the U.S. and abroad, Statistics Canada reported Friday.

Analysts had been expecting the deficit to narrow from June's record level of $4 billion (revised higher from the initial reading of $3.6 billion).

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Theconsensus view hadthe deficit droppingto $3.3 billion, soJuly's trade performance ended up being better than expected. Analysts said the July trade figures should serve to reinforce expectations thatthird-quarter growth will be solid.

"Trade was a sore spot for Canada in Q2, but July's data took a big step back in the right direction," Avery Shenfeld of CIBC Capital Markets said in a morning commentary."Trade should be a big part of the rebound from a negative Q2 to a healthy Q3."

Boost for 3rd quarter

Statistics Canadareportedearlier this week that June's GDP grew by a better than expected 0.6 per cent the one bright spot in an otherwise weak second quarter.

The Bank of Canada expects annualizedthird-quarter growth of 3.5 per cent.

"July's trade data contributes to the developing snapshot of Canada's economy in the third quarter, where we expect exports to make a decent positive contribution to growth," wrote TD senior economist Leslie Preston, who also calledJuly's trade data a "step in the right direction."

"[But] it does not undo the damage from what has been a five-month string of disappointments for exports."

Export growth widespread

July'sgrowth in exports was widespread andled by non-energy products motor vehicles and parts, metals and mineral products, aircraft equipment and parts, and industrial machinery.

Statistics Canada said exports of motor vehicles and parts rose because seasonal shutdowns at Canadian auto plants were shorter in July.

Nine of 11 sectors posted gains.

Total exports rose 3.4 per cent to $42.7 billion, the federal agency said. Imports slipped 0.1 per cent to $45.2 billion.

A 3.3 per cent rise in exports to the U.S. led to a major widening in Canada's trade surplus with the U.S.

It now stands at $2.6 billion, up from June's $1.4 billion.

The Canadian dollar closedupmore than half a centto 76.98cents US.

• U.S. hiring slows as employers add modest 151,000 jobs

The U.S. Labour Department reported Friday that the American economy churned out a modest 151,000 jobs in August, leading to speculation that the Federal Reserve will be less likely to raise interest rates later this month.