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Welcome to the California Trade Report, Beacon Economics’ monthly analysis of California’s international trade activity. This report analyzes data released by the U.S. Census Bureau’s Foreign Trade Division and pinpoints important trends in the state’s import/export industry, identifying potential effects on the state’s economy. The report is only a sampling of the kind of economic research and data analysis available from Beacon Economics.

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California Drought Looms Over Farm Exports

October 3, 2014 - After a rare off month in July, California’s export trade rebounded in August, according to a Beacon Economics' analysis of foreign trade data released this morning by the U.S. Commerce Department.

The state's merchandise export trade in August totaled $14.55 billion, up a nominal 2.4% from the $14.21 billion in exports recorded in August 2013.

Exports of manufactured goods led the way, increasing by 2.7% to $9.60 billion. “California’s economy still has an active and competitive manufacturing sector, despite what much of the rhetoric might have us believe, ” said Christopher Thornberg, Founding Partner of Beacon Economics. “And surprisingly, according to the data, most of the growth is occurring in the Southern portion of the state, in the Los Angeles region, not the San Francisco Bay Area."

Exports of non-manufactured goods (chiefly agricultural produce and raw materials) fell by 1.3% to $1.75 billion this August. Re-exports meanwhile edged up 1.2% to $3.20 billion.

California’s showing in August was in contrast to the solid 5.2% increase in overall U.S. merchandise exports. “August saw the usual mix of gains and losses,” said Jock O’Connell, Beacon Economics' International Trade Advisor. Aerospace sector exports and semiconductors were both down, but shipments of communications equipment surged. And in a possible foreshadowing of the impact of the continued drought on the state's multi-billion dollar agricultural trade, exports of fruit and tree nuts were down by 8.0% from last August, while exports of vegetables were off 7.8%.

A Closer Look At The Numbers

As always, Beacon Economics cautions against reading too much into month-to-month fluctuations in state export statistics, especially when focusing on specific commodities or destinations. Significant variations may occur as the result of unusual developments or exceptional one-off trades and may not be indicative of underlying trends.

For that reason, Beacon Economics compares the latest three months for which data are available (i.e., June-August) with the corresponding period one year earlier.

California's merchandise exports during the latest June-August period totaled $44.17 billion, a nominal increase of 1.8% over the $43.40 billion recorded during the same period a year earlier.

The state accounted for 10.7% of total U.S. merchandise exports over the past three months.

California’s export trade is highly diversified, with eleven different major categories of goods each accounting for at least $1 billion in exports during the latest three-month period. Performance, however, was highly variable, with eight categories showing declines in exports from the same period last year.

Topping the export list in this year’s June-August period was Computer & Electronic Products down 0.54% to $10.79 billion); Transportation Equipment down 7.0% to $4.66 billion); Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods), with down 4.4% to $4.29 billion in exports. On a positive side, strong growth were recorded for Chemicals (+11.3%); Processed Food Products (+4.7%); and Electrical Equipment (+4.1%).

Mexico remained the single largest destination for California exports during the latest three-month period, with the value of exports advancing by 4.9% to $6.47 billion. Exports to Canada fell by 7.9% to $4.55 billion, while shipments to China sagged 0.9% to $4.35 billion. Japan (down 4.4% to $2.99 billion) and Hong Kong ($2.40 billion, up 20.9%) rounded out California's ‘Top Five’ export destinations in the June-August period.

Regionally, California's exports to the Asia Pacific region (including Australia and New Zealand) rose by 3.0% to $17.12 billion. Exports to the European Union grew by 1.1% to $7.30 billion. California exports to Latin America and the Caribbean (excluding Mexico) rose by 16.4% to $2.82 billion. The state’s exports to Sub-Saharan Africa amounted to only $188.2 million, down 22.3% from the same June-August period last year.

By mode of transportation, 46.1% of California’s $44.17 billion merchandise export trade in the most recent three-month period was shipped by air, with Los Angeles International and San Francisco International Airports accounting for the vast majority of the state’s airborne trade. Seaports handled 30.4% of the state’s export trade, while the remaining 23.5% of the state’s exports of goods traveled overland by truck or rail to Canada and Mexico.

Year-to-date, California’s merchandise export trade ($114.54 billion) represented a 4.9% gain over the first eight months of last year. That puts the state on a path to achieve its best export year ever.

California Exports: The Near Term Outlook

Beacon Economics expects California’s export trade to continue expanding, albeit at a relatively sluggish pace over the next several months. The economies of the state’s major foreign markets have either been slowing or contracting. China’s economic growth is falling below expectations. Japan’s recovery effort has been stunted, the European Union is flirting with recession, and growth in Mexico along with much of the developing world has essentially gone flat, according to O’Connell.

Meanwhile, the value of the U.S. dollar against most major currencies has been RISING since mid-summer, and there is little to indicate that trend will soon be reversed. “The dollar is up 3% from earlier in the year, 8% against the Euro, largely on the basis of strong growth data coming out of the U.S. economy,” said Thornberg. “These strong numbers are based on speculation that the US will be the first economy to start monetary tightening in a world awash with Central Bank liquidity.”

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