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.
January 7, 2015 - Weak economies abroad coupled with a stronger dollar put a dent in California’s merchandise export trade in November 2014, 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 November totaled $14.89 billion, down nominally 2.2% from the $15.22 billion in exports recorded in November 2013. “This seems to be inconsistent with the broader news of a sharp contraction in the overall trade deficit,” said Christopher Thornberg, Founding Partner of Beacon Economics. “But that number is due to the collapse in import prices, particularly oil, which causes nominal imports to fall faster than nominal exports.” Overall, U.S. exporters in November saw the value of their merchandise trade shrink by 0.6% from November 2013.
The state's exports of manufactured goods declined 2.8% from $9.63 billion to $9.36 billion. Exports of non-manufactured goods (chiefly agricultural produce and raw materials) fell 12.5% from $2.45 billion to $2.14 billion. Re-exports meanwhile rose by 7.7% from $3.14 billion to $3.38 billion.
"In these numbers, we see the co-mingled effects of a strong dollar, weak overseas demand, and congestion at the state’s major seaports,” said Jock O’Connell, Beacon Economics’ International Trade Advisor.
Still, owing to the more robust export growth recorded earlier in 2014, California’s merchandise export trade through November totaled $159.40 billion, 3.8% ahead of the $153.53 billion reported at the same time in 2013. That means that the state remains on course to set an all-time record for merchandise exports.
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., September-November) with the corresponding period one year earlier.
California's merchandise exports during the latest September-November period totaled $44.86 billion, a nominal gain of 1.3% over the $44.29 billion recorded during the same period last year.
The state accounted for 10.7% of total U.S. merchandise exports over the latest 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 months.
Performance, however, was highly variable, with six categories showing declines in exports from the same period last year. Topping the export list in this year’s September-November period was Computer & Electronic Products ($11.26 billion, up 2.2% from $11.02 billion); Transportation Equipment ($4.77 billion, down a slender 0.5% from $4.79 billion); Non-Electrical Machinery ($3.78 billion, down 3.7% from $3.93 billion). Miscellaneous Manufactured Commodities -- a catchall category of merchandise ranging from medical equipment to sporting goods -- was up 5.6% from $3.50 billion to $3.70 billion, while Chemicals rose 4.4% from $3.44 billion to $3.59 billion.
There was also a sharp decline food shipments. Exports of agricultural produce declined by 9.0% from $4.50 billion to $4.09 billion, while exports of processed food products fell by 10.0% from $2.71 billion one year ago to $2.44 billion during the September-November 2014 period. Beacon Economics cautions against assuming this is a function of the drought. “Farm employment in the state has been at a ten-year high and agricultural income in the second quarter of the year hit an all time high level,” said Thornberg. “This suggests that the impact of the drought on the state’s agricultural industry has not been what much of the rhetoric might imply.” The decline is due, in part, to softening food commodity prices and port congestion, which is much more of an issue for perishable products.
Exports of Petroleum and Coal Products, which had been increasing briskly over the past three years, saw a 10.7% jump in the period, from $1.66 billion to $1.84 billion. Electrical Equipment also looked especially robust in the latest period with a 33.6% leap from $1.35 billion to $1.80 billion.
Mexico solidified its status as the state’s single largest export destination during the latest three-month period, with the value of exports increasing by 9.3% from $6.22 billion to $6.79 billion. Exports to Canada dropped 5.8% from $5.22 billion to $4.92 billion, while shipments to China fell by 5.2% from $4.08 billion to $3.87 billion. Japan (down 11.7% from $3.34 billion to $2.95 billion) and Hong Kong (up 7.4% from $2.32 billion to $2.49 billion) rounded out California's ‘Top Five’ export destinations in the September-November period.
Regionally, California's exports to the Asia Pacific region (including Australia and New Zealand) dropped 3.0% from $17.51 billion to $16.97 billion. Remarkably, considering the ongoing economic travails of the European Union, California’s exports to the EU edged higher by 2.6%, going from $7.38 billion to $7.60 billion. California exports to Latin America and the Caribbean (excluding Mexico) leapt 18.5% from $2.46 billion to $2.91 billion. The state’s exports to Sub-Saharan Africa amounted to only $195.2 million, down 6.0% from $208 million during the same period in 2013.
By mode of transportation, 42.9% of California’s $44.86 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 32.4% of the state’s export trade, while the remaining 24.7% of the state’s exports traveled overland by truck or rail to Canada and Mexico.
California Exports: The Near Term Outlook
There is little reason to be sanguine about the prospect for near-term improvement in the state’s merchandise export trade, O'Connell said. The strong dollar that made American goods and services more expensive for foreign businesses and consumers in November grew even stronger in December. Seaport congestion also worsened toward the end of the year and likely stymied or even discouraged some exporters from shipping goods abroad. And adverse economic conditions throughout much of the world outside of the U.S. offered no real encouragement for exporting.
On the upside, as Beacon Economics has noted previously, a sizable portion of the state’s export trade is destined for factories in Mexico (and Canada, albeit to a lesser extent) that produce finished products for export back to the United States. “So long as the U.S. economy continues to expand, California’s export trade is thus buffered, at least partially, from economic travails abroad,” O'Connell said.
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