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.
September 2, 2016 - July was another step in the right direction for California's merchandise export trade.
According to Beacon Economics’ analysis of U.S. trade statistics released this morning by the Census Bureau, the nominal value of shipments by California businesses to foreign destinations totaled $13.51 billion for the month, 2.1% below the $13.80 billion recorded in same month last year.
However, the nominal decline belies the fact that prices of both imports and exports have deceased. Once we account for price changes, estimated volumes of trade are roughly on par with where they were last year. More importantly, this is 5th consecutive month of increases, following the lows seen at the start of the year.
“This is definitely a glass half full half empty report.” said Christopher Thornberg, Founding Partner of Beacon Economics. “From a revenue perspective challenges clearly remain for state exporters, but the trends in product volumes have been moving in the right direction since the start of the year.”
The state’s value of exports of manufactured goods in July fell by 4.7% to $8.55 billion from $8.97 billion one year earlier. On the other hand, exports of non-manufactured goods (chiefly agricultural products and raw materials) did rise by 5.4% to $1.56 billion from $1.48 billion the previous July. Re-exports also edged up by 1.5% to $3.40 billion from $3.35 billion.
California accounted for 11.6% of the nation’s merchandise export trade in July. By way of comparison, the value of overall U.S. merchandise exports in July dropped by 6.5%, while exports from Texas fell 17.0%. Year-to-date, California’s $92.18 billion merchandise export trade lagged last year’s $97.61 billion total over the same period by 5.6%.
“California exporters have shown remarkable resilience in the face of a tough global climate,” Thornberg said. The U.S. dollar remains elevated compared to a few years ago. California’s top two export markets, Mexico and Canada, saw their economies shrink during the second quarter, while Japan’s economy came close to stalling. China, while officially insisting it is enjoying robust growth, also remains a less reliable market for California goods than in recent years.
On the import side of the trade ledger, the U.S. Department of Commerce has determined that California was the state-of-destination of 18.4% of all U.S. merchandise imports in July, with a value of $33.47 billion, down 4.0% from the $34.86 billion in imported goods in July of 2015. Manufactured imports totaled $30.64 billion, off 2.4% from $31.40 billion last year. Non-manufactured imports in July were valued at $2.83 billion, down 18.2% from $3.46 billion one year ago. California’s imports exceeded the 2.4% year-over-year fall-off in U.S. merchandise imports in July.
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 June occur as the result of unusual developments or exceptional one-off trades and June not be indicative of underlying trends. For that reason, Beacon Economics compares the latest three months for which data are available (i.e., May-July) with the corresponding period one year earlier.
California's merchandise exports during this latest three-month period totaled $41.5 billion, a nominal decline of 3.6% from the $43.03 billion recorded during the same period last year.
The state's export trade is highly diversified. Through the second quarter of 2015, eleven major North American Industry Classification Systems (NAICS) categories of goods each accounted for at least $1 billion in California exports. However, in the most recent three-month period, just ten categories hit that mark. Performance also varied, with only two categories showing a year-over-year improvement.
On the plus side, exports of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) inched up 0.7% from $4.16 billion to $4.18 billion. Exports from the Primary Metal Manufacturing sector (smelters and refiners of ferrous and nonferrous metals from ore, pig or scrap, using electro-metallurgical and other process metallurgical techniques) surged by 53.3% from $0.9 billion to $1.37 billion.
On the other hand, the state’s exports of Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments) slumped 3.9% from $10.79 billion to $10.37 billion. Exports of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, and their parts) slipped by 2.0% from $4.82 billion to $4.72 billion. Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) exports dropped 8.4% from $4.0 billion to $3.67 billion.
Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) were off by 2.6% from $3.37 billion to $3.29 billion. Agricultural exports, hampered by low prices, slid by 5.2% from $3.18 billion to $3.02 billion. Exports of Food and Kindred Products were even further down, falling 11.8% from $2.39 billion to $2.11 billion. Exports of Electrical Equipment (including household appliances) drifted lower by 3.5% from $1.76 billion to $1.7 billion. Fabricated metal exports dipped by 3.5% from $1.05 billion to $1.01 billion.
The value of Petroleum and Coal exports continued to stagger, from $1.2 billion to $866 million, down 27.8% from a year ago. This category includes refined petroleum products, such as gasoline, lubricating oils, and asphalt as well as coal and pet coke. Another former $1 billion per quarter export category, Waste & Scrap, skidded 17.3% from $1.02 billion to $844 million.
Mexico continued to rank as California’s single largest export destination during the latest three-month period, despite an 11.1% drop in the value of Golden State shipments south of the border. Exports tumbled from $6.94 billion to $6.16 billion. Exports to Canada fell much less, dropping 2.6% from $4.34 billion to $4.23 billion, while shipments to China were off by 6.8% from $3.86 billion to $3.59 billion. Exports to Japan also struggled, falling by 4.0% from $2.96 billion to $2.84 billion. Rounding out the Top Five California Export Markets in the latest three-month period was Hong Kong, which boosted its imports of California goods by 7.2%, from $2.17 billion to $2.32 billion.
Regionally, California's exports to the Asia Pacific region (including Australia and New Zealand) slumped by 3.9%, falling from $16.18 billion to $15.54 billion. By contrast, California’s exports to the European Union rose by a healthy 5.1% from $7.42 billion to $7.8 billion, propelled largely by a 13.1% surge in the value of shipments to the United Kingdom during the May through July period when the Brexit vote came to pass.
The state’s exports to Latin America and the Caribbean (excluding Mexico) were off sharply by 12.6% from $2.27 billion to $1.98 billion. California’s exports to South Asia (chiefly India and Pakistan) continued to subside, falling by % from $1.38 billion to $ billion. The state’s exports to Sub-Saharan Africa in the latest three months “officially” amounted to a paltry $149 million, down 21.8% from $190 million during the same period twelve months earlier. (However, we believe that the official data dramatically understate the value of California’s export trade with Africa. That is because a very sizable portion of shipments of California products bound for Africa are routed through seaports and airports in states elsewhere in the country and are frequently mislabeled as exports of the states hosting those international trade gateways.)
By mode of transportation, 48.9% of California’s $41.5 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 28.0% of the state’s export trade by dollar-value, while 22.9% traveled overland to Canada and Mexico. The relatively high share of California’s export trade that is airborne reflects the state’s emphasis on the production of high-value and often low-weight goods, including perishable farm produce.
Behind the numbers, things have been getting better and there is an emerging consensus that international trade will see modest growth in the coming months. The good news is that, on a seasonally-adjusted basis, the value of California’s merchandise export trade has actually been improving since February. The nominal numbers are still negative, but the vital signs are getting stronger.
Still, the chief factors that have been stymieing the state’s exporters (and exporters around the country) remain active: a generally weak global economy, the commodity glut that has pushed commodity prices to low levels, and a strong dollar. The Brexit has only added more uncertainty. While things seem to have stabilized there are still risk factors.
In sum, the prospects for restoring California’s merchandise export trade to a growth trajectory anytime soon are not especially promising so long as foreign markets remain soft, export prices stay low, and the value of the dollar moves higher.
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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