Recovery spurred along by trade, productivity & house prices

Canada is marching forward on its path toward economic recovery pushed along by larger trade surpluses, better productivity rates and higher new house prices, according to government data released Thursday.

Canada’s trade surplus widened in January as imports of machinery, energy products and consumer goods fell for the first time in two months, Statistics Canada said.

The trade surplus was $799 million compared with $75 million in December. Imports dropped 1.7% to $32.2 billion, while exports edged 0.5% higher, a slower pace than in previous months.

Scotia Capital economist Derek Holt said the trade figures contributed to overall economic growth in January.

“There’s reason to think the trade position will continue to improve throughout the year,” he told QMI.

January new house prices, another key indicator of economic activity, rose steadily. The New Housing Price Index came in 0.4% higher, the same monthly increase seen in the past three months, StatsCan said.

Prices were up the most in St. John’s, by 1.7%, followed by Winnipeg, Toronto and Oshawa, Ont.

Permits data shows an emphasis on single-family building projects, which tend to come in at higher pricing points than the multi-family homes, pushing overall prices upward, HSBC Securities Inc. said in a note.

Year-over-year, the home price index was up 0.1% in January. It’s only a slight rise but noteworthy because it marks the first annual increase since December 2008.

In a separate release, StatsCan reported that Canadian industries operated at nearly 71% of their production capacity in the fourth quarter, up from 68.7% in the previous quarter.

“The gain in the fourth quarter was the first sizeable increase in overall capacity use since the first quarter of 2007,” it said.

Of the 21 manufacturing industries surveyed, 13 posted higher capacity use in the quarter. Paper manufacturing was a particular bright spot, with the utilization rate rising 6% and marking the first increase after 19 consecutive quarters of declines.

And all of the non-manufacturing sectors saw improved productivity. Higher oil and gas demand led to a ramp up of crude petroleum production, from 76.2% to 78%.

Housing and capacity numbers could spur the Bank of Canada to raise interest rates before July, Scotia’s Holt and Karen Cordes Woods said in a note.

“These two reports support our view that Canada has transitioned away from an emergency rate setting with low, not near-zero rates required and with BoC hikes lying just around the corner,” it said.

TRADE DETAILS

Exports to countries other than the United States, Canada’s biggest trading partner, picked up in the month, rising 3.8%, StatsCan said. Shipments to the 30-member nations of the Organisation of Economic Cooperation and Development, and in particular Japan were strong, it said.

Exports to the U.S. dropped 0.5% and imports fell 0.5%, mainly because of a slowdown in the auto sector, StatsCan said. Canada’s trade surplus with the U.S. was $4.1 billion in January.

Imports from the OECD and European Union declined, narrowing Canada’s deficit with these countries to $3.3 billion in January from $4.1 billion in December.

January’s slowdown in exports was mainly due to the automotive sector, StatsCan said. Automotive product exports fell 4.1% to $4.3 billion as volumes dropped 4%. The export of passenger cars dropped almost 9% as some manufacturers extended holiday plant shutdowns into January.

Aside from the auto sector, exports of goods remained strong in the month, rising 4.8%, StatsCan said. The gains were led by consumer goods, such as toys and apparel, which had their best month since December 2008.

Metal and alloy exports rose 8.4%, boosted mostly by gold, it said.