CANADA DATA: Goods Trade Deficit Widens, Details Mixed
The Canadian goods trade deficit exceeded expectations in August at C$6.32B (C$5.6B consensus), although the net effect was completely offset by a downward revision to July's deficit estimate ($3.8B prior rev from $4.9B). With the services balance relatively steady, this left the overall goods and services deficit at C$6.0B, up from C$3.5B. Overall the trade dispute with the US keeps the data volatile but overall suggestive of only a weak contribution from net exports to overall economic activity after a very weak Q2.
- August saw the first drop in goods exports since April (-3.0% M/M) but total exports were still up 0.3% for the year-to-date (Jan-Aug). This was heavily distorted by metal/non-metallic mineral products posting a near 8% drop M/M, the third consecutive month of sharp declines. In turn this was due to a 12% drop in unwrought gold - and all of this is due to shifts in safe-haven bullion demand rather than fundamental changes in the trade account. In volume terms, total exports were down 2.8%.
- Imports rose 0.9% M/M (-1.3% prior) but this was largely due to large imports of unwrought gold (imports of metal products were up 24%) after large declines in May-July. But there was also notable strength in consumer goods imports 2.3%), potentially signalling better consumer demand but StatCan notes this was "partly because of higher prices".
- That said there was noteworthy weakness in industrial machinery/equipment/part exports (-9.5% M/M), the first fall in 4 months, and in forestry products and building and packaging materials (-10%, due to "anti-dumping and countervailing duty rates on Canadian softwood lumber that took effect in the United States in late July and early August" per StatCan).
- There were decreases in exports 8 of 11 product sections, while exports to the US falling 3.4% (again, partly due to gold shipments) and 3.3% Y/Y for Jan-Aug, with the trade surplus narrowing C$1B to C$6.4B. The deficit with the rest of the world meanwhile hit a record $12.8B.
- Looking ahead, StatCan noted future trade reports may be delayed due to the US federal government shutdown, as both countries use each other's imports dat to produce their export statistics. The September data is due out Nov 4.
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LOOK AHEAD: US Macro: PPI (Wed) and CPI (Thu) Inflation
US PPI inflation is released on Wednesday before CPI inflation on Thursday, an unusual ordering that should see core PCE implications dialled in after the CPI release rather than the usual wide range waiting for specific PPI details. PPI will be watched more closely than usual this month after a far stronger than expected jump in last month’s July report fired a warning short over tariff-based cost pressures starting to feed through. That included a 0.6% M/M increase in our preferred core series of PPI ex food, energy & trade services, which strips out items such as the then booming portfolio management & investment advice category following the strength in equity markets. It's too early to gauge an accurate sense of analyst expectations for August.
CPI inflation on Thursday will then be the last major release ahead of the Sep 17 FOMC decision. Consensus looks for core CPI at 0.3% M/M after the 0.32% M/M in July, another monthly increase comfortably above a pace consistent with 2% inflation. August should in theory start to see the largest tariff impacts along with September and possibly October. Returning to July’s report, core goods inflation was softer than expected, at a still solid (by core goods standards) 0.2% M/M for a second month running but about half that of 0.4% expected by analysts. Instead, non-housing core services surprised higher. The latter was a “dangerous” development in the words of a usually dovish Chicago Fed’s Goolsbee (’25 voter), who speaking after Friday’s payrolls report is still undecided on a September cut whilst looking for August inflation data “to get more information”.
LOOK AHEAD: US Macro: Payrolls Preliminary Benchmark Revisions (Tue)
- The BLS on Tuesday will publish preliminary estimates of benchmark revisions, based off QCEW data for Q1.
- These will give an indication of the actual benchmark revisions on the Mar 2025 level of payrolls due with the Jan 2026 payrolls report released in early February.
- Bear in mind that the final benchmark estimate tends to nearly always be more negative than the preliminary figure – see historical values to the right.
- That doesn’t mean they can’t be large again after last year’s historically negative revision that lowered the level of payrolls by ~600k. Initial estimates we’ve seen look for another large downward revision, with the smallest being worth -550k but with wide ranges higher.
FED: Barclays Adds A Cut To 2025 Fed View
Barclays analysts now expect three Fed cuts in the remainder of the year, adding October to their pre-existing call for 25bp reductions in September and December. "Given the disappointing August employment report, we expect the FOMC to see more elevated downside risks to the employment side of the mandate."
- As for a 50bp September cut, "we think that the FOMC will view [that] as sending too strong a signal that labor market conditions are deteriorating. Indeed, we think that participants such as Powell understand that the slower pace of payroll employment reflects at least, in part, slower labor supply, which does not translate into increased labor market slack."
- For 2026 they continue to expect 25bp cuts in March and June to 3.00-3.25%, but "we do not think the FOMC will be able to cut rates more than twice next year, as we think that activity will show some slight acceleration, with the economy adapting to the new tariff environment and fiscal policy providing some support, and the unemployment rate will revert down amid limited increase in labor supply."
