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.
November 4, 2015 - The value of California’s merchandise export trade contracted slightly in September from the same month last year, according to Beacon Economics’ analysis of foreign trade data released this morning by the U.S. Commerce Department.
The state’s exports of goods to foreign markets in September totaled $14.13 billion, down 2.2% from the $14.45 billion recorded in September 2014. By way of comparison, overall U.S. merchandise exports fell by 6% over the same period, while exports from Texas shrank by 13.7%.
California's exports of manufactured goods in September edged down by 1.4% to $9.12 billion from $9.25 billion last year. Exports of non-manufactured goods (chiefly agricultural produce and raw materials) dropped by 6.7% to $1.65 billion from $1.77 billion the previous September. Re-exports meanwhile were off by 1.8% to $3.36 billion from $3.43 billion.
“All things considered, the September numbers weren’t too shabby,” said Jock O’Connell, Beacon Economics’ International Trade Adviser. “The environment these days for foreign trade is pretty grim. As Governor Brown might say, a 2.2% drop in exports could be regarded as a psychic victory.”
Still, California’s export trade so far this year is lagging behind last year’s pace by 3.1%.
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., July - September) with the corresponding period one year earlier.
California's merchandise exports during this year’s third quarter totaled $41.17 billion, a nominal decline of 3.8% from the $42.80 billion recorded during the same period last year. Nonetheless, the state accounted for 11.3% of total U.S. merchandise exports in the latest three months.
California’s export trade is highly diversified. Eleven major categories of goods each accounted for at least $1 billion in exports in the latest quarter. Performance, however, varied, with only four categories recording year-over-year gains. On the plus side, Non-Electrical Machinery exports gained 7.3%, going from $3.55 billion to $3.80 billion. Agricultural exports rose marginally by 0.2% from $2.88 billion to $2.89 billion. Exports of Fabricated Metal Products rose by 2.2% from $1.03 billion to $1.05 billion. Exports from the Primary Metal Manufacturing industries saw a 90.2% leap from $.75 billion to $1.42 billion.
On the downside, exports of Computer & Electronic Products dropped by 1.4% from $11.03 billion to $10.88 billion. Transportation Equipment exports fell 13.5% from $4.93 billion to $4.26 billion. Exports of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) were down 3.6% from $3.43 billion to $3.31 billion. Chemical exports sagged 5.2%, dropping from $3.64 billion to $3.45 billion. Food and Kindred Products exports continued to drift lower, down 9% from $2.45 billion to $2.23 billion. Electrical Equipment exports were off by 3.4% from $1.75 billion to $1.70 billion. Petroleum and Coal Products exports plummeted 32.9% from $1.54 billion to $1.04 billion. Waste & Scrap exports were off 21.6% from $1.13 billion to $0.88 billion.
Mexico continued to rank as California’s single largest export destination during the latest three-month period but with the value of exports nudging up only 0.7% from $6.42 billion to $6.47 billion. Exports to Canada fell by 10.5% from $4.74 billion to $4.24 billion, while shipments to China declined by 4.1% from $4.04 billion to $3.87 billion. Exports to Japan also edged lower by 2.9% from $2.91 billion to $2.83 billion. Shipments to Hong Kong jumped 26.9% from $2.21 billion to $2.80 billion. As a result, Hong Kong knocked South Korea (+1.7% from $1.92 billion to $1.95 billion) from its customary place among California’s Top Five export destinations.
Regionally, California's exports to the Asia Pacific region (including Australia and New Zealand) dropped 1.1% from $16.52 billion to $16.33 billion. California’s exports to the European Union increased 2.5% from $6.97 billion to $7.14 billion. California’s exports to Latin America and the Caribbean (excluding Mexico) were down by17.5%, dropping from $2.72 billion to $2.25 billion. California’s exports to South Asia (chiefly India and Pakistan) were off by 19.2% from $1.68 billion to $1.36 billion. The state’s exports to Sub-Saharan Africa in the latest three months amounted to just $194 million, down 12.2% from $171 million in exports during the same period twelve months earlier.
By mode of transportation, 48% of California’s $41.17 billion merchandise export trade in the third quarter of 2015 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 28.1% of the state’s export trade, while 23.9% traveled overland by truck or rail to Canada and Mexico.
"Despite a stronger dollar, California exports are still doing well," says Jordan Levine, Beacon Economics' Director of Economic Research. "The state is adding manufacturing jobs and the onging drought has yet to cause the major contraction in the agriculture sector that many feared."
Beacon Economics sees cross-currents ahead which should nudge California’s export trade numbers in varying directions over the next few months. We see no reason to expect a sharp deterioration in the state’s export trade, but we also do not foresee a return to robust growth anytime soon.
With respect to evaluating export statistics over the next six or seven months, it should be noted that we are now entering a period when our year-over-year comparisons will likely be skewed upward by the fact that last year at this time saw the beginning of a slowdown in West Coast port activity due to a contract dispute between longshore workers and terminal operators.
California shipments to Mexico, our leading export market, should remain positive as long as the U.S. economy continues to expand. As we have noted previously, a significant portion of the state’s exports to Mexico are components and other supplies destined for the largely foreign-owned manufacturing plants (once popularly known as maquiladoras) in Mexico that produce goods principally for the U.S. market. That dynamic serves to help buffer California’s export trade with Mexico from that country’s domestic economic problems and the 17% decline in the peso since last fall.
Canada, which has seen its currency drop in value against the U.S. dollar by 13% since last September, has new leadership. Whatever policies and programs the Trudeau government employs to stimulate growth, the fact remains that this resource-rich nation’s economy has been stung badly by the sharp drop in oil and mineral prices in the past year.
Across the Pacific, China’s leaders appear to be reaching with growing desperation for all buttons and levers in hopes of forestalling a further decline in economic growth. Their actions, including a sixth interest rate cut over the past several months, do not inspire confidence. As an article in today’s Wall Street Journal reports ("China Lowers Expectations," Mark Magnier, Wall Street Journal, November 3, 2015) Communist Party leaders are now talking openly about the prospect of the official (and not generally believed) GDP growth rate dropping to 6.5% next year.
On a more positive note, California’s exports to the European Union have been increasing. In addition to finding a surer footing on the path to sustained economic growth, the EU member states will be challenged to provide housing, food, clothing, medicine and other necessities for the massive inflow of refugees from the Middle East and Africa. Meeting those needs will almost necessarily boost the EU’s demand for imported goods.
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