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, 2014 - Despite increasingly adverse economic circumstances and geopolitical turmoil abroad, California’s exporters again posted strong growth numbers in September, 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 September totaled $14.44 billion, up 4.6% from the $13.81 billion in exports recorded in September 2013.
The Exports of manufactured goods rose by 5.1% to $9.5 billion. Exports of non-manufactured goods (chiefly agricultural produce and raw materials) barely budged, however, increasing by only 0.1% from last September. Re-exports meanwhile jumped by 6.7%.
California’s showing in September exceeded the overall 3.9% increase in the value of shipments that month by U.S. exporters.
“September was a very mixed bag for California exporters. Aerospace shipments were especially robust in September, but exports of farm produce and processed food items continued to sag,” said Jock O’Connell, Beacon Economics’ International Trade Advisor. “With each passing month, we are seeing mounting evidence of the adverse impact the drought is having on California's multi-billion dollar agricultural export trade."
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 the latest July-September period totaled $42.84 billion, a nominal increase of 2.1% over the $41.96 billion recorded during last year’s third quarter. The state accounted for 10.7% of total U.S. merchandise exports over the latest quarter.
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 past quarter.
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 July-September period was Computer & Electronic Products (up 3.4% to $11.03 billion); Transportation Equipment (up 6.7% to $4.93 billion); Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods), was down 5.6% to $3.43 billion in exports.
Exports of agricultural produce declined by 6.2% in the latest quarter from one year ago, while exports of processed food products dropped by 4.1%. Exports of Petroleum and Coal Products, which had been increasing briskly over the past three years, saw a 20.5% decline in the latest quarter.
Strong growth was recorded for Chemicals (13.5%) and Electrical Equipment (38.5%).
Mexico remained the single largest destination for California exports during the latest three-month period, with the value of exports advancing by 3.8% to $6.42 billion. Exports to Canada fell by 3.7% to $4.69 billion, while shipments to China sagged by 2.0% to $4.03 billion. Japan (down 5.6% to $2.91 billion) and Hong Kong (up 15.2% to $2.21 billion) rounded out California's ‘Top Five’ export destinations in the July-September period.
Regionally, California's exports to the Asia Pacific region (including Australia and New Zealand) rose by 2.2% to $16.54 billion. Exports to the European Union edged ahead by 1.2% to $6.98 billion. California exports to Latin America and the Caribbean (excluding Mexico) jumped by 7.5% to $2.74 billion. The state’s exports to Sub-Saharan Africa amounted to only $194.7 million, down 15.3% from the same quarter last year.
By mode of transportation, 44.9% of California’s $42.84 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 30.1% of the state’s export trade, while the remaining 25.0% 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 ($128.99 billion) represented a 4.9% gain over the first nine months of last year. California therefore remains on a path to achieve its best export year ever.
California Exports: The Near Term Outlook
There is little doubt that U.S. export numbers have been disappointing recently, but they are still up from last year—growing at about a 3.8% nominal rate over the past quarter (relative to 2013). To put this in perspective, the average growth rate over the past two decades has been slightly more than 6.5%. Much of this is due to slow growth in the world economy. Ongoing fiscal issues in Europe, slowing growth in China, and a slump in the broader developing world are all to blame.
Looking ahead, Beacon Economics does not believe the global situation is as dire as some commentators have suggested. "Most numbers indicate the trends are disappointing, but stable, with little sign of continued slowing," said Christopher Thornberg, Founding Partner of Beacon Economics. "Add new efforts by the European Central Bank and the Bank of Japan to stimulate those respective economies, and things may well start to improve soon." Stronger growth numbers in the United States have also led to a second issue: The Fed is starting to ‘zig’ on interest rate policy even as these other central banks are zagging. Thus, the dollar has suddenly appreciated by 5.5% against a broad mix of other currencies, which will have some effect on future export growth.
Still the dollar is weaker than it was at anytime between 1997 and 2007, and given cost cutting measures put in place over the last few years, U.S. exporters remain very competitive. Beacon Economics expects ongoing growth, even if at a modest pace. Moreover, weakness in the global economy has caused commodity prices to fall, not the least of which, oil is at $80 per barrel. This will serve to offset any negative impacts of the exchange rate appreciation. These issues should not pose much of a threat to the United States overall or to California.
But there may well be another rapidly emerging threat to California exporters: the risk of a shut-down of West Coast seaports. The International Longshore and Warehouse Union has been working without a contract since July 1, and, while negotiations between the union and the Pacific Maritime Association (representing the steamship lines and terminal operators at the ports) had been proceeding amicably, there are now signs of sharpening discord between the two parties, raising the potential for either a strike by the union or a lock-out by the terminal operators at ports up and down the West Coast.
Nonetheless, barring a prolonged disruption of operations at the state’s seaports, Beacon Economics remains confident that California’s merchandise export trade will continue to expand at a modest pace over the coming months.
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