OTTAWA -- Canada's merchandise trade surplus fell to $778 million in July as imports rose more than exports for the month, Thursday.

The result compared with a revised trade surplus of $2.6 billion for June compared with the initial reading of a $3.2 billion surplus.

TD Bank economist Omar Abdelrahman said the reading was the latest in a list of recent negative economic surprises suggesting that the Canadian economy hit a soft patch in the beginning of the third quarter.

"But despite the overall negative implications of the report, not all the details were gloomy," Abdelrahman wrote in a report.

"For instance, the strong increase in imports points to improved domestic demand during the month. Several industries also showed solid export growth."

Statistics Canada reported earlier this week that the economy contracted at an annualized rate of 1.1 per cent in the second quarter and its initial estimate for July pointed to a pull back of 0.4 per cent for the month.

The July trade surplus came as total imports rose 4.2 per cent to reach a record high of $53.0 billion.

Statistics Canada said motor vehicles and parts climbed 21.1 per cent and accounted for more than two-thirds of the overall increase in a month that is normally marked by temporary closures at North American automotive assembly plants for summer holidays.

Imports of electronic and electrical equipment and parts also rose 8.5 per cent in July helped by imports of communication, and audio and video equipment.

Meanwhile, total exports rose 0.6 per cent in July to $53.7 billion, another record high, as gains in a number of different sectors were partially offset by a sharp drop in lumber exports.

Exports of motor vehicles and parts rose 6.4 per cent, while energy products climbed 1.9 per cent.

Excluding exports of lumber and other sawmill products, total exports rose 2.0 per cent.

In volume terms, total imports rose 1.9 per cent in July, while exports fell 0.3 per cent.

Meanwhile, the country's international trade in services deficit increased to $301 million in July compared with a deficit of $60 million in June as imports of services rose 3.7 per cent and exports of services gained 1.2 per cent.

Canada's trade surplus with the world for goods and services combined fell to $477 million in July compared with $2.5 billion in June.

This report by The Canadian Press was first published Sept. 2, 2021