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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 Exports End 2016 on High Note

February 7, 2017 - California’s merchandise export trade concluded 2016 with an exceptionally strong showing in December, posting a nominal 9.3% gain over the same month in 2015.

According to a Beacon Economics’ analysis of U.S. trade statistics released this morning by the U.S. Census Bureau, foreign shipments by California businesses totaled $14.04 billion for the month, a robust increase over the $12.85 billion recorded in December 2015. For the year, the state’s exports totaled $163.62 billion compared to $165.37 billion recorded one year earlier.

"After a sluggish start to the year, export numbers picked up in the spring and, despite a strong dollar, finished the year briskly,” said Jock O’Connell, Beacon Economics’ International Trade Advisor.

The state’s exports of manufactured goods in December increased by 8.6% to $9.05 billion from $8.33 billion one year earlier. Exports of non-manufactured goods (chiefly agricultural products and raw materials) jumped 14.1%, to $1.70 billion from $1.49 billion. Re-exports, meanwhile, rose 9.3% to $3.29 billion from $3.01 billion.

For the year as a whole, the state’s manufactured export trade amounted to $103.41 billion, 2.9% shy of the previous year’s $106.50 billion. Non-manufactured shipments totaled $19.79 billion, off 1.0% from $19.99 billion one year prior. Re-exports hit $40.42 billion exceeding last year’s total of $38.88 billion by a 4.0% margin.

"If you consider that the value of the dollar was at its highest in over a dozen years in 2016, it shouldn’t be surprising that California’s exports last year fell short of 2015,” said Robert Kleinhenz, Economist and Executive Director at Beacon Economics.

The state’s exports of manufactured goods in November increased by 10.0% to $8.91 billion from $8.10 billion one year earlier. Exports of non-manufactured goods (chiefly agricultural products and raw materials) jumped 19.2%, to $2.11 billion from $1.77 billion. Re-exports, meanwhile, rose 13.8% to $3.39 billion from $2.98 billion.

By way of comparison, the nominal value of overall U.S. merchandise exports in December rose 5.6%, while exports from Texas edged up 2.4% over last December.

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 can 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., October-December) with the corresponding period one year earlier. That analysis shows that California’s merchandise exports totaled $43.66 billion, a $3.31 billion, or 8.2%, increase over the same time period last year.

The strong year-over-year growth in the fourth quarter of 2016 was due to broad based gains across the state’s top commodities, as well as a rebound in oil prices that had been a drag on growth earlier in the year.

The largest gains were seen in miscellaneous manufactured commodities, which totaled $3.5 billion in the fourth quarter, a 20.9% increase over the fourth quarter of 2015.  This category is made up of a broad range of items and materials, one of them being jewelry, which was a major contributor to growth. Exports of precious metals, stones, and pearls totaled $1.62 billion, a 52.3% increase over the same time one year prior. The bulk of this increase was due to a real increase in volume and not just a change in prices. The average export price for precious metals, stones, and pearls increased by only 3.9% over the same time period.

Transportation equipment exports, namely motor vehicles, were also a strong contributor to export growth. During the fourth quarter of 2016 transportation equipment exports totaled $5.4 billion, a $555.6 million, or 11.4%, increase over the same time one year prior. Of this total, exports of motor vehicles increased by $400.2 million.

Exports of petroleum products were still a slight drag on export growth, but substantially less than in the first half of the year. Exports for this category totaled $825 million in the fourth quarter, down just 0.1% from the same time one year prior. This small decline was due to lower volumes of exports as average export prices rose by 7.7% over the time period. With crude oil in large supply globally, the volume of petroleum product exports is not expected to increase in the short term.

On a regional basis, exports to China made up the bulk of the increase in the value of exports in the fourth quarter. Exports to the mainland and Hong Kong together made up $6.9 billion, a 27.0% increase over the fourth quarter of 2015. Exports to Mexico, the number one destination for the state’s exports by dollar value in 2016, as well as to Canada, the number two destination, were both down over this time period. The value of exports to Mexico and Canada decreased by 3.3% and 1.4%, respectively.

The Outlook

There has been a regime change in Washington, not just a change in administrations. Going back to the days of the Bretton Woods conference in 1944, a broad consensus had been maintained, a consensus that was favorably disposed to trade liberalization and to constructive engagement (rather than confrontation) in dealing with U.S. trading partners.

Given early moves made by the Trump Administration, it appears that this consensus has been upended. President Trump has questioned the benefits to the U.S. of the current global trading system and the rules that govern how business is to be done among nations. Upon taking office, the President promptly squashed any remaining hope that the Trans-Pacific Partnership (TPP) might be approved, although it should be noted that the accord was not expected to win approval in Congress regardless of who assumed the presidency on January 20. Implementation of TPP would have provided benefits for a wide range of California industries from farms to pharma.

President Trump has since taken aim at NAFTA, and Mexico in particular, although there are signs that presidential bravado may giving way to more measured deliberations as the new administration gradually discovers the real-world constraints of policymaking.

Both the U.S. and Mexico now seem prepared to reappraise an agreement that was drafted nearly a quarter century ago when negotiators could not have possibly comprehended the changes that have since occurred in supply-chains, industrial processes, and product lines. With Mexico as its leading export market, the consequences for California are not at all clear.

Relations with China are also of great concern. China is California’s third largest export market and, by far, the largest driver of trade through the state’s seaports. Anything that would diminish the flow of trade through California’s ports would have a serious economic impact not just on the ports themselves and their customers but also on the legions of workers who process the movement of goods transiting those ports.

While President Trump has appointed anti-China hardliners to lead the charge on trade, it remains to be seen how his policy actions will match up to his campaign rhetoric. Regardless of whether the Trump Administration succeeds or fails in its policy efforts, it has contributed to heightened levels of uncertainty in the economy, which is good for neither businesses nor consumers in California and the United States.


 


Note: The U.S. Commerce Department has been publishing state-of-destination import statistics since 2008. Beacon Economics has long felt that state import data provide a highly misleading indication of the state in which imported goods were ultimately consumed. As a major gateway for the nation’s foreign trade, California has consistently been credited with an out-sized share of U.S. merchandise imports. However, we now believe that the process by which state-of-destination import statistics are compiled has become stable enough to be used to measure relative increases or decreases in the value of imported goods consumed or otherwise used by residents or businesses located in California. We emphasize that we are primarily interested in determining trends. We continue to think it highly inadvisable to combine state export and import statistics to calculate a state trade balance.
 

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