By Peter G. Hall, Vice-President and Chief Economist
The most recent merchandise trade figures were pretty impressive, all things considered. Weather has wracked a lot of January and February indicators, but so far, you can count out Canadian trade. Were we just lucky, did we capitalize on others’ weather misfortunes, or is something else going on?
Likely all three factors played a role. Take weather, for instance. Low temperatures and heavy snow across much of the lower-48 prompted a surge in energy exports. Natural gas exports were up 87 per cent in February over last year’s levels. On the same basis, electricity was up 82 per cent, and in spite of much-publicized transportation constraints, crude oil shipments were up 16 per cent, thanks to a three-month rebound. The numbers are impressive, but they will likely be just about as fickle as the weather, settling back into a normal rhythm as the year wears on.
Lousy weather could also be seen as an explanation for a notable gain in a lesser-known export category. Last year, Canada exported over $1.3 billion of heating, cooling and air purification equipment. As of February, exports were up 26 per cent year-on-year. But unlike energy exports, this increase isn’t tied to temperatures; the rise has been sustained since early 2013. It’s more likely connected to the U.S. housing boom and more recent gains in non-residential investment stateside.
Higher U.S. homebuilding is clearly the reason Canada’s lumber exports have been so impressive. Lately, weather and transportation constraints have temporarily dampened growth, but spring should see renewed verve in export activity. America’s housing revival is likely also behind the steady increases in exports of furniture and fixtures, currently up 16 per cent from last February. As the U.S. housing boom resumes, look for these housing-related sectors to continue notching good numbers.
Breaking news rarely, if ever, covers the packaging materials and containers industries. We’re likely poorer for it, because this is an industry that likely has a lot to say about economic cycles. Those who took heed when its exports slipped significantly in 2007 might have seen the impending recession very clearly. Perhaps it is speaking loudly about what’s going on under the surface in U.S. industry right now. A recent rapid run-up now has exports of packaging materials and containers up 14 per cent year-on-year, far ahead of any single-year gain in the post-crisis period.
Other categories are showing impressive gains, but their predictive ability is less certain. Canada’s aerospace sector is renowned for its volatility, a feature that is true for the industry the world over. No clear current trend is visible for exports of aircraft themselves, but aircraft engines and parts tell a different story. They have actually sustained impressive growth since shipments bottomed out in 2010. At present, February exports are up 21 per cent over last year’s levels, ahead of the recent trend rate. As global growth picks up through 2014 and into next year, demand together with a weaker Canadian dollar should further boost the fortunes of Canada’s aerospace industry.
Another unsung but rapidly-rising export category is meat products. It racked up international sales last year of $5.7 billion, is currently rising 19 per cent year-on-year, and has produced decent growth since 2011. While less of a cyclical bellwether, this industry could well be pointing to a developing longer-term trend. Growing world wealth – particularly in emerging markets – is increasing the appetite for processed meat. As a high-quality net exporter, Canada stands to benefit. Moreover, trade deals – like the CETA, Canada-Korea and if inked, the TPP – promise greater potential market gains for Canadian products, for a long time to come. For different reasons, a category to watch.
The bottom line? Have a look at these less-heralded, but rapidly increasing export numbers. Seems that they hold rich clues for both near- and long-term developments in global demand.
This commentary is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon.