Canada's exports advanced 3.5 per cent in May helping to narrow the trade deficit to $152 million and continuing a period of sustained growth in both exports and imports.

The U.S. also narrowed its trade deficit by 5.6 percent in May to $44.4 billion, with an expansion of exports that seemed to indicate an improved manufacturing sector.

Canadian imports grew 1.6 per cent in May, mainly vehicles and auto parts used in manufacturing in Canada.

TD economist Leslie Preston called the trade report “a really good news story.”

“With key manufacturing plants back in action in May, Canada's export sector rebounded as expected. Decent strength in imports of capital goods in the second quarter is also a positive sign for business investment, which TD Economics expects will rebound after a decline in the first quarter,” Preston said in a note to investors.  

Trade position improving

“Economists, ourselves included, have been bemoaning the lack of export-led growth in Canada. However, Canada's trade position has been steadily improving since its post-recession low in mid-2012. The month-to-month swing in the headline balance can be volatile but looking at the six-month average, Canada is a hair's breadth away from being in a surplus position for the first time in two years,” she said.

Preston said TD expects Canada's export sector to continue to accelerate through the second half of the year in line with the U.S. economy, pointing to the positive jobs report out of the U.S. this morning.

Canadian exports to the United States advanced 2.1 per cent to $33.5 billion in May, led by passenger cars and light trucks, as production resumed after maintenance was conducted at some Canadian manufacturing plants in April.

Energy exports increased 3.4 per cent to $10.9 billion, with higher volumes sold.

Canadian exports to countries other than the U.S. advanced even more quickly, up 8.3 per cent to $10.7 billion.

Imports expanded to $44.3 billion, with volumes up 2.4 per cent and prices down 0.8 per cent. 

U.S. has trade deficit with Canada

The U.S. reports its exports to Canada were the highest on record while imports from Canada were the highest since July 2008, leaving a trade deficit of $2.8 billion with Canada.  

Overall U.S. exports hit an all-time high of $195.5 billion in May, helped by a jump in exports of petroleum products, according to the Commerce Department.

The rise in exports reflected record sales of U.S.-made autos and auto parts and an 11.3 percent jump in exports of U.S. petroleum products. The U.S. has narrowed its trade gap in part because of the rich supply of shale oil now available domestically, instead of from foreign sources.

The trade deficit narrowed 5.6 per cent in May to $44.4 billion after hitting a two-year high of $47 billion in April.

A lower trade deficit boosts overall economic growth and shows U.S. companies are earning more overseas and expanding to take up capacity left idle during the recession.

With files from the Associated Press