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Trade deficit narrows, but numbers point to slowing domestic economy – The Globe and Mail

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Shipping containers are seen at the Fairview Cove Container Terminal in Halifax on Aug. 25, 2017.

Andrew Vaughan/The Canadian Press

Canada’s trade deficit for goods narrowed to $3.3-billion in November, however, a drop in imports and weakening exports beyond metals point to slowing economic activity in Canada toward the end of 2020.

The November merchandise trade numbers released by Statistics Canada on Thursday show that exports ticked up 0.5 per cent that month, fuelled mainly by a surge in international gold sales offsetting lower exports of vehicles, building materials and consumer goods. Exports have been increasing steadily since April, but remain below prepandemic levels. Imports of goods, which reached prepandemic levels in October, fell 0.3 per cent in November.

“A slightly narrower trade deficit in November won’t give markets much to cheer,” Canadian Imperial Bank of Commerce economist Royce Mendes wrote in a note to clients. “Exports looked soggy outside of a surge in gold shipments, which seems unsustainable, while foreign goods destined for Canada fared even worse.”

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While exports were up over all, seven out of 11 trade categories posted declines, led by a 4.1-per-cent drop in motor vehicles and parts and a 6.2-per-cent drop in building and packaging materials. This was offset by an 11.6-per-cent increase in exports of metals and non-metallic mineral products and a 26-per-cent increase in exports of metal ores and non-metallic minerals.

“Increased exports of refined gold to the United Kingdom were behind this surge, resulting from a rise in sales of cast gold bullion bars, as well as higher transfers of gold within the banking system,” Statscan said in a release.

Imports fell slightly in November after five consecutive months of growth, with imports of industrial machinery, equipment and parts falling 3.9 per cent.

“Adding [imports and exports] up, total trade posted its most sluggish advance of the year, which is further evidence of the slowdown in economic activity that occurred towards the end of 2020,” Mr. Mendes wrote.

Toronto-Dominion Bank economist Omar Abdelrahman said the trade numbers sent mixed signals. “The increase in export volumes will be a net positive for growth, and is encouraging considering the virus-related headwinds seen since the beginning of the fall,” he wrote in a note to clients. He added, however, that strong metals exports mask a slowdown in other export categories and that the weakness in imports “bodes ill for domestic demand.”

The trade picture differs between Canada and the United States and Canada and the rest of the world. Total trade with countries other than the U.S. was up 2.1 per cent in November, reaching a record $33.1-billion. Total trade with the U.S, on the other hand, decreased by 1 per cent to $63.8-billion in November – the lowest level since June – with exports to the U.S. dropping 2.2 per cent. Statscan said the weaker U.S. trade numbers are largely because of lower energy exports and imports.

As for international trade in services, Canada’s surplus widened slightly in November, with exports increasing 1 per cent. Both exports and imports of services remain far below prepandemic levels.

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“Exports of travel services rose 7.5 per cent to $963-million in November. Despite this increase, travel services exports remained relatively low, at less than one-third of the value recorded in February, 2020,” Statscan said.

Economists were watching the November trade numbers closely for signals about the Canadian dollar, which has been strengthening relative to the U.S. greenback.

“The recent strength of the Canadian dollar will support a narrower nominal trade balance in the near term by making imports cheaper, and could help incentivize some business investment. But the Bank of Canada will be concerned with how much of a headwind the loonie’s appreciation is to the competitiveness of the country’s exports,” Mr. Mendes wrote.

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Canadian retail sales jump in November, but December looks gloomier

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december retail sales

By David Ljunggren

OTTAWA (Reuters) – Canadian retail sales jumped by much more than expected in November, but preliminary figures for December suggest a sharp drop as novel coronavirus restrictions were re-imposed, Statistics Canada said on Friday.

Food and drink sales rose by 5.9% and helped push overall retail trade up by 1.3%, its seventh consecutive monthly gain and significantly greater than the 0.1% increase predicted by analysts in a Reuters poll.

Most retail businesses were open in November but as the second wave of the coronavirus spread, many provinces imposed clamp downs. Statscan said December retail sales looked set to drop by 2.6% but stressed this was a preliminary estimate.

“The expected tumble in December retail sales following the pop in November conforms to the Bank of Canada‘s outlook, which sees weakness at the turn of the year,” said Ryan Brecht, a senior economist at Action Economics.

The Bank of Canada forecast on Wednesday that the economy would shrink in the first quarter of 2021 due to the impact of temporary business closures.

Shortly after the data were released the Canadian dollar was trading 0.5% lower at 1.27 to the greenback, or 78.74 U.S. cents, with the currency giving back some of this week’s gains as oil and global shares fell.

Statscan is due to issue November GDP data on Jan. 29 and Royce Mendes, a senior economist at CIBC Capital Markets, said the agency’s flash estimate of 0.4% growth still seemed reasonable. The estimate was released on Dec. 23.

Overall November sales were up in 7 of 11 sub-sectors, representing 53.4% of retail trade, while in volume terms, retail sales rose 1.2%.

 

(Reporting by David Ljunggren in Ottawa and Fergal Smith in Toronto; Editing by Ken Ferris)

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Biden's rescue plan will give U.S. economy significant boost: Reuters poll – TheChronicleHerald.ca

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By Indradip Ghosh and Richa Rebello

BENGALURU (Reuters) – U.S. President Joe Biden’s proposed fiscal package will boost the coronavirus-hit economy significantly, according to a majority of economists in a Reuters poll, and they expect it to return to its pre-COVID-19 size within a year.

Biden has outlined a $1.9 trillion stimulus package proposal to jump-start the world’s largest economy, which has been at the epicenter of the COVID-19 pandemic having lost over 400,000 lives, fueling optimism and sending Wall Street stocks to record highs on Thursday.

Hopes for an upswing in U.S. economic growth, helped by the huge stimulus plan, was reflected in the Jan. 19-22 Reuters poll of more 100 economists.

In response to an additional question, over 90%, or 42 of 46 economists, said the planned fiscal stimulus would boost the economy significantly.

“There are crosswinds to begin 2021 as fiscal stimulus helps to offset the virus and targeted lockdowns. The vaccine rollout will neutralize the latter over the course of the year,” said Michelle Meyer, U.S. economist at Bank of America Securities.

“And upside risks to our…growth forecast are building if the Democrat-controlled government can pass additional stimulus. The high level of virus cases is extremely disheartening but the more that the virus weighs on growth, the more likely that stimulus will be passed.”

For a Reuters poll graphic on the U.S. economic outlook:

https://fingfx.thomsonreuters.com/gfx/polling/oakveynqovr/Reuters%20Poll%20-%20U.S.%20economy%20outlook.png

The U.S. economy, which recovered at an annualized pace of 33.4% in the third quarter last year from a record slump of 31.4% in the second, grew 4.4% in the final three months of the year, the poll suggested.

Growth was expected to slow to 2.3% in the current quarter – marking the weakest prediction for the period since a poll in February 2020 – amid renewed restrictions.

But it was then expected to accelerate to 4.3%, 5.1%, 4.0% in the subsequent three quarters, a solid upgrade from 3.8%, 3.9% and 3.4% predicted for those periods last month.

On an annual basis, the economy – after likely contracting 3.5% last year – was expected to grow 4.0% this year and 3.3% in 2022, an upgrade from last month.

For a graphic on Reuters Poll – U.S. economy and Fed monetary policy – January 2021:

https://fingfx.thomsonreuters.com/gfx/polling/azgpoljbkvd/U.S.%20economy.PNG

Nearly 90%, or 49 of 56 economists, who expressed a view said that the U.S. economy would reach its pre-COVID-19 levels within a year, including 16 who expected it to do so within six months.

“Even without the stimulus package, we had already thought the economy would get back to pre-COVID levels by the middle of this year,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets.

“With the new stimulus package there will be more direct money in people’s pockets, easily boosting the economy, provided a vaccine rollout progresses in a constructive manner.”

But unemployment was not predicted to fall below its pre-pandemic levels of around 3.5% until 2024 at least.

When asked what was more likely for inflation this year, only one said it would ease. The other 40 economists were almost evenly split between “a significant pickup” and price pressures remaining “about the same as last year.”

Still, the core Personal Consumption Expenditures (PCE) price index – the Federal Reserve’s preferred inflation gauge – was forecast to average below the target of 2% on an annual basis until 2024 at least, prompting the central bank to keep interest rates unchanged near zero over the forecast horizon.

“I don’t think it will be an increase in underlying (inflation) trend, it is sort of a rebound in prices that have been depressed during the pandemic,” said Scott Brown, chief economist at Raymond James.

(For other stories from the Reuters global long-term economic outlook polls package:)

(Reporting by Indradip Ghosh and Richa Rebello; Additional reporting by Manjul Paul; Polling by Mumal Rathore; Editing by Rahul Karunakar and Hugh Lawson)

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The U.S. economy likely grew 4.1% at the end of 2020, but GDP seen masking weakness in some sectors – MarketWatch

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The U.S. economy may have grown about 4% in the final three months of 2020, a great showing even in the best of times.

These are not the best of times.

The economy still has lots of ground to make up, for one thing, after the deepest recession on record. And growth slackened off toward the end of 2020 after the coronavirus pandemic roared back and caseloads reached a record high, pointing to a loss of momentum in the economy early in the near year.

Read: The U.S. lost 140,000 jobs in December. How bad was it?

The U.S. fourth-quarter report on gross domestic product, due on Thursday, will still offer a useful diagnosis of the economy. It will tell us which parts have mostly recovered and which are still ailing.

Wall Street
DJIA,
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economists polled by the Dow Jones/The Wall Street Journal predict a 4.1% increase in fourth-quarter GDP on an annualized basis. While that would mark a steep drop from the 33.4% increase in the third quarter, it still shows the economy forging ahead even as the coronavirus pandemic spiked again.

The details are unlikely to look quite as good.

The biggest component of the U.S. economy, consumer spending, almost certainly softened to mediocre 3% growth or less. Most government aid for the economy had faded away by the start of the quarter and businesses facing new government restrictions laid off more workers at the end of the year.

Business investment in structures such as oil rigs or office buildings was also weak.

Other drags on the economy included lower state and local spending and a bigger international trade deficit.

The economy got some sizzle from a surprising boom in the housing market. Low mortgages rates and people seeking more space outside the cities have lifted sales of previously existing homes to a 14-year high.

Businesses also started to rebuild their inventories — goods for future sale, that is — after letting them draw down early in the pandemic. That’s a good sign for 2021 since it suggests companies are expecting stronger sales.

Indeed, a pair of surveys of business executives in January suggest companies are banking on a better 2021, mostly because of rollout of coronavirus vaccines.

How soon the vaccinations levels are high enough to really help the economy, however, is still an open question.

Read: Fauci says two more COVID-19 vaccines could be approved within ‘weeks’

“We only expect vaccination rates to be high enough to accelerate the economic recovery from mid-2021 onward,” said Cailin Birch, global economist at The Economist Intelligence Unit.

The promise of more federal financial aid from the Biden White House is also adding to the optimism, but the stimulus could take awhile to reach households and businesses. It’s also unclear how much aid Congress will approve.

What could also help the economy after a rocky start in the new year is rising consumer confidence. Americans historically spend more when they are confident and push the economy to greater heights.

A pair of surveys this coming week, consumer confidence and consumer sentiment, will give another glimpse into whether the hopes inspired by the vaccines are outweighing the angst caused by the record number of coronavirus cases.

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