A month after hitting a record high, Canada's trade deficit shrank to $1.3 billion in August as a large drop in imports more than outpaced a slight decline in exports.

Imports fell 3.1 per cent to $38.8 billion while exports edged down 0.1 per cent to $37.5 billion during the month, Statistics Canada reported Thursday.

Exports of energy products increased 5.5 per cent to $8.6 billion after six consecutive monthly declines, the data agency said. On the other side of the coin, energy products were also the only import subsector to post an increase.

A country's trade balance is the gap between the value of what it sells to the rest of the world versus what it takes in. When a country imports more than it exports, it has a trade deficit. The opposite is known as a trade surplus.

Shipments to U.S. increase

Although opinion is very much mixed on how much credence should be given to the metric, it is the broadest measure of gauging a country's trading activity on the world stage. Canada has historically posted trade surpluses up until the global recession that began in 2008, and has seen volatile figures ever since.

August's $1.3 billion deficit was a marked pullback from the record $2.5 billion deficit posted the previous month.

Canadian imports from the United States fell 4.3 per cent to $24.2 billion, while exports rose 1.4 per cent to $27.6 billion. So Canada's trade surplus with its largest trading partner widened from $2 billion in July to $3.5 billion in August.

But the trade deficit with all other countries increased from $4.5 billion in July to $4.8 billion in August, mainly because of a 19.5 per cent decline in exports to Japan, Statistics Canada reported.