Canada’s trade surplus with the rest of the world fell in July as growth in imports surpassed growth in exports.

Statistics Canada said the surplus faded to $4.9 billion in July from a revised $5.6 billion in June. Exports continued to rise, up 2.2% to $44.3 billion in July with volume up 1.7% and prices half a per cent.

But imports rose 4.6% to $39.4 billion, for the fourth month in a row.

The volume of imports was up 3.6% and prices jumped 1%, part of a nine-month rise.

Canada’s trade surplus with the United States fell to $8.9 billion, down from $9.7 billion.

“The deterioration in net exports on a volumes basis in July sets up for this sector to be drag on the economy’s growth rate again in the third quarter,” wrote Dawn Desjardins, assistant chief economist at RBC Economics in an update this morning.

“However, we still expect the economy to accelerate after the very tepid growth recorded in first six months of 2008 based on our view that consumer spending will pick up pace, that business investment will rebound after a soft second quarter and that there will be another quarterly inventory build, backed by the continued support from the terms of trade boost.”

South of the border, the U.S. trade deficit swelled in July to its widest gap in 16 months as the price of imported oil surged to another record.

July’s trade gap was much bigger than Wall Street expectations. Economists had estimated a US$58.80 billion shortfall for July. It was the widest trade deficit since US$62.32 billion in March 2007.

The U.S. deficit in international trade of goods and services increased by 5.7% to US$62.20 billion from June’s revised US$58.84 billion, the U.S. Commerce Department said today.

Exports in July climbed 3.3% to US$168.15 billion from US$162.79 billion. July imports increased by 3.9% to US$230.35 billion from US$221.62 billion.

“It is clear that this result is all an energy story that the decline in oil prices since mid-July should help address,” wrote Meny Grauman in a CIBC World Economics report.

“Excluding petroleum the U.S. trade deficit actually continued to shrink, going from US$21.5 billion to US$18.8 billion. This marks its third consecutive monthly improvement.”

Grauman added that the U.S. trade report should have little impact on real GDP. “Trade will not be enough to save second half real GDP growth, which we expect to be negative.”

Separately, the number of U.S. workers filing new claims for state unemployment benefits fell slightly more than expected last week but remained elevated.

Initial claims for jobless benefits fell 6,000 to a seasonally adjusted 445,000 in the week ended September 6, the U.S. Labour Department said in its weekly report today.

Economists had expected claims would fall by 4,000.

IE