The jobs report provided a big upside surprise this morning, but the trade data did not. Canada’s merchandise exports plunged to their lowest level in 19 months in May, as energy prices continued to fall and the agricultural industry reeled from mad cow disease.

Statistics Canada reported Friday that companies exported goods worth just over $32.6 billion, down 2.8% from April and the lowest level since October 2001.

BMO Nesbitt Burns says the trade surplus slipped to $4 billion in May from $4.6 billion in April, this was an upwardly revised from $4.1 billion.

“Exports fell for the second month in a row (-2.8%), largely due to lower prices flowing from the surge in the loonie in the month. Exports are now down 4.5% year over year. Import prices also fell heavily due to the powerful Canadian dollar, cutting imports 1.1% m/m and 2.3% y/y,” Nesbitt notes.

“On balance, exports in all major categories save for automotive products (which remained flat during the period) fell,” says RBC Financial. “Meanwhile, Canada’s largest import sector — machinery and equipment — exerted the largest drag on total imports in May. Imports in this sector fell 3.9% while lower energy prices sent imports of energy products down by 8.8%.”

“Certainly, the relative weakness of the external side of Canada’s economy will not come as much surprise to most given the downside forces of the mad cow scare as well as the current soft demand from Canada’s largest trading partner the U.S. and the impact of retreating energy prices. While these forces are expected to dissipate in the ensuing months, the highly visible rise of the Canadian dollar will begin to have a more noticeable impact on exporters and trade flows heading into 2004,” comments RBC. “But even with this downward bias, any deterioration in the trade balance will come from lofty levels and is unlikely to lead to an outright deficit in Canada’s current account.”

“On balance, this report is not as weak as it could have been, and the upward revision to April is a bright spot,” concludes Nesbitt. “While Canada’s strong trade position is waning, this is one of the smallest surpluses in the past four years, the current account remains in surplus. This report should be no real problem for the Canadian dollar, and doesn’t alter the Bank of Canada’s decision.”