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.
February 5, 2016 - The value of California’s merchandise export trade in 2015 totaled $165.37 billion, a 5% fall-off from the $174.13 billion in exports reported in 2014, according to Beacon Economics’ analysis of foreign trade data released this morning by the U.S. Commerce Department.
California's exports of manufactured goods in 2015 fell by 5.3% to $106.50 billion from $112.50 billion in 2014. Exports of non-manufactured goods (chiefly agricultural produce and raw materials) dropped by 11.9% to $19.99 billion from $22.69 billion the previous December. Re-exports meanwhile inched lower by 0.2% to $38.88 billion from $38.94 billion.
“By way of comparison, the value of U.S. merchandise exports in 2015 declined 7.1%, while exports from Texas fell 13.1%. “Not since 2009 have the state’s exports fallen from the previous year,” said Jock O’Connell, Beacon Economics’ International Trade Adviser. “Still, California continues to fare better than most of the nation’s other top five exporting states. Only Washington State’s numbers were less bad.”
Much of the decline in exports was due to prices said Christopher Thornberg, Founding Partner of Beacon Economics. “The increasingly competitive nature of global markets means that U.S. exports now tend to be priced in the local currencies,” said Thornberg. “So when the dollar appreciates, the nominal value of U.S. exports fall—even though real volumes stay the same.”
Beacon Economics’ analysis finds that some of the fall-off in the dollar value of California’s merchandise exports can be attributed to a decline in commodity prices. For example, almond prices have collapsed by more than 30% in recent months, compounding the impact of a 7.5% drop in the volume of almond exports in December. Beacon Economics' export price index for California was down by 5.6% in 2015, indicating that the state’s trade was actually flat for the year after adjusting for price changes.
Still, there were some worrying trends at the end of last year. “November’s and December’s declines are not price driven,” said Thornberg. “Rather, the fragile state of the global economy does seem to be having some impact on demand for California produced products.”
The state’s exports in 2015’s final month totaled $12.83 billion, down 12.9% from the $14.73 billion recorded in December 2014. California’s exports of manufactured goods in December dropped by 12.7% to $8.33 billion from $9.54 billion one year earlier. Exports of non-manufactured goods tumbled by 17.7% to $1.49 billion from $1.81 billion the previous December. Re-exports meanwhile declined by 10.8% to $3.01 billion from $3.37 billion.
Overall U.S. merchandise exports fell by 10.3% from December 2014, while exports from Texas shrank by 14.9%.
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., October-December) with the corresponding period one year earlier.
California's merchandise exports during this year’s third quarter totaled $40.38 billion, a nominal decline of 10.1% from the $44.93 billion recorded during the same period last year. The state accounted for 10.9% of total U.S. merchandise exports in the latest three months.
California’s export trade is highly diversified. Normally, as many as eleven major categories of goods each account for at least $1 billion in exports each quarter. However, in the most recent quarter, only nine categories hit that mark. Falling short was Petroleum and Coal, down 55.1% to $864 million, and Scrap & Waste Materials, down 31.7% to 742 million. Performance, however, varied, with only three categories showing year-over-year gains.
On the plus side, Transportation Equipment exports rose 1.4% from $4.78 billion to $4.85 billion. On the downside were the remaining major categories.
Exports of Computer & Electronic Products slipped by 4.1% from $11.57 billion to $11.07 billion. Exports of Agricultural Products were off by 13.4% from $4.27 billion to $3.69 billion. Non-Electrical Machinery exports declined by 13.4% from $3.95 billion to $3.42 billion. Exports of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) were down 15.7% from $3.43 billion to $2.89 billion. Chemical exports moved lower by 8.4% from $3.48 billion to $3.18 billion. Food and Kindred Products exports fell, down 6.7% from $2.44 billion to $2.27 billion. Electrical Equipment exports slipped 0.8% from $1.77 billion to $1.76 billion. Exports of Fabricated Metal Products remained even $1.02 billion in each year-over-year quarter.
Mexico continued to rank as California’s single largest export destination during the latest three-month period, but with the value of exports slipping 0.2% from $6.82 billion to $6.81 billion.
Exports to Canada fell by 13.4% from $4.84 billion to $4.19 billion, while shipments to China tumbled by 13.4% from $3.92 billion to $3.39 billion. Exports to Japan also dipped by 4.7% from $3.09 billion to $2.94 billion. Rounding out the Top Five California Export Markets in the latest quarter was Taiwan, up 19.1% from $2.0 billion to $2.38 billion.
Regionally, California's exports to the Asia Pacific region (including Australia and New Zealand) dropped 8.4%, falling from $17.16 billion to $15.70 billion, a dip propelled largely by the substantial fall-off in exports directly to China. California’s exports to the European Union were off 3.0% from $7.54 billion to $7.32 billion. California’s exports to Latin America and the Caribbean (excluding Mexico) were down sharply by 22.8% from $2.70 billion to $2.09 billion. California’s exports to South Asia (chiefly India and Pakistan) were off by 45.8% from $1.72 billion to $935 million. The state’s exports to Sub-Saharan Africa in the latest three months amounted to just $163 million, down 10.1% from $182 million during the same period twelve months earlier.
By mode of transportation, 45.2% of California’s $40.38 billion merchandise export trade in the latest three months 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 31% of the state’s export trade, while 23.8% traveled overland by truck or rail to Canada and Mexico.
Looking ahead, Beacon Economics finds reason for optimism. While most of the state’s major trading partners continue to experience economic challenges, the dollar has begun giving up some of its value against the currencies of several trading partners.
After a precipitous plunge last year, the Canadian dollar has recovered 6.5% of its value against the greenback in just the past two weeks. The Mexican peso and the Japanese yen have also seen slight gains against the dollar in recent days. The euro has likewise seen modest strengthening.
The most serious concern on the horizon remains China and how China’s leaders deal with the nation’s economic slowdown. Their actions over the past year, including a sixth interest rate cut over the past several months, do not inspire confidence. Much attention in the western media has focused on China’s efforts to transition from an economy driven by exports and public sector investment to one in which household spending plays a more dominant role as it does in developed economies. That transition will require major structural changes, including the withdrawal of financial support for unprofitable state-owned enterprises, that are likely to be politically risky.
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