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California Exports Still Mired In Global Doldrums

July 6, 2016 - Growth once again eluded California’s merchandise export trade in May, with the nominal value of shipments to foreign destinations totaling $13.35 billion, 5.5% below the $14.13 billion recorded in same month last year.

Not since April 2015 has the state’s merchandise export trade shown a year-over-year improvement.

The state’s exports of manufactured goods in May fell by 4.7% to $8.80 billion from $9.23 billion one year earlier. Exports of non-manufactured goods (chiefly agricultural products and raw materials) were off by 3.9%, falling to $1.74 billion from $1.81 billion the previous May. Re-exports also fared poorly, dropping 9.1% to $2.81 billion from $3.09 billion.

California accounted for 11.2% of the nation’s merchandise export trade in May. Through the first five months of 2016, California’s merchandise export trade lagged last year’s total over the same period by 6.8%. It was also 9.3% lower than the state’s nominal export totals at the same point in 2014.

By way of comparison, the value of overall U.S. merchandise exports in May dropped by 6.7%, while exports from Texas fell 12.3 %. Florida's export trade was likewise off by 10.5%.

"The numbers continue to reflect the same languid economic conditions abroad that have dampened international trade worldwide, not just in California," said  Jock O’Connell, Beacon Economics’ International Trade Adviser.

The World Bank recently ratcheted down its forecast for 2016 global growth to 2.4%, one-half percent below the Banks’s January forecast. The International Monetary Fund has similarly pared back its outlook for 2016 because of less than expected growth during the first part of the year.

California exporters enjoyed some benefit through the first few months of the year from a dollar that had been easing lower since peaking early last December 2015. (However, that trend was abruptly reversed in the wake of Britain’s June 23 vote to leave the European Union.)

Lower export prices for a wide range of products that California ships to foreign customers also contributed to the nominal decline in the state's export trade through May, but, on a positive note, export prices have generally been edging back up in the past couple of months.

Moreover, real export activity looks brighter. "Once again, California exports are lower than they were a year ago, but seasonally adjusted exports reveal a series of monthly gains since the start of the year which has coincided with the dollar's value edging down over the same period," said Robert Kleinhenz, Beacon Economics' Executive Director of Research. "Outbound containers at the Ports of Los Angeles and Long Beach were 2.8% higher through the first 5 months of this year compared to one year ago. These trends suggest that the state's real export activity, adjusted for prices and exhange rates, has stabilized if not improved."

Even so, Beacon Economics does not foresee any immediate improvement in the state’s overall merchandise 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., March-May) with the corresponding period one year earlier.

California's merchandise exports during the latest three-month period totaled $39.93 billion, a nominal decline of 8.7% from the $43.74 billion recorded during the same period last year.

The state's export trade is highly diversified. In recent years, as many as eleven major categories of goods have each accounted for at least $1 billion in exports each quarter. However, in the most recent quarter, just nine categories hit that mark. Performance also varied, with only one category showing a year-over-year gain.

The state’s leading export category continued to be Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments). Exports of these items fell 7.9 % from $11.16 billion to $10.28 billion. Exports of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, and their parts) rose by 4.8% from $4.57 billion to $4.79 billion. Exports of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) slipped 3.8% from $3.41 billion to $3.28 billion.

Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) exports declined 11.4% from $4.13 billion to $3.66 billion. Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) moved lower by 0.3% from $3.50 billion to $3.49 billion. Exports of Agricultural Products dropped 17.6% from $3.73 billion to $3.08 billion. Food and Kindred Products exports were likewise off by 16.8% from $2.58 billion to $2.15 billion. Exports of Electrical Equipment (including household appliances) drifted lower by 8.9% from $1.83 billion to $1.67 billion. Petroleum and Coal exports collapsed by % from $1.47 billion to $861 million. This category includes refined petroleum products, such as gasoline, lubricating oils, and asphalt as well as coal and pet coke. Exports of Fabricated Metal products fell 1.0% from $1.06 billion to $1.04 billion.

Mexico continued to rank as California’s single largest export destination during the latest three-month period, but with the value of exports tumbling 13.8% from $7.09 billion to $6.12 billion. Exports to Canada similarly fell, dropping by 13.1% from $4.67 billion to $4.07 billion, while shipments to China declined by 5.4% from $3.87 billion to $3.66 billion. Exports to Japan also struggled, falling by 7.4% from $3.13 billion to $2.90 billion. Rounding out the Top Five California Export Markets in the latest three=month period was South Korea, despite a 15.7% fall-off from $2.51 billion to $2.11 billion.

Regionally, California's exports to the Asia Pacific region (including Australia and New Zealand) dropped 6.9%, falling from $16.31 billion to $15.8 billion. California’s exports to the European Union fell by 2.5% from $7.72 billion to $7.53 billion. Interestingly, California exports to the United Kingdom, which accounted for 18.1% of all of the state’s shipments to the European Union in the latest three-month range, rose by 1.2%.

The state’s exports to Latin America and the Caribbean (excluding Mexico) were down by 21.2% from $2.55 billion to $2.01 billion. California’s exports to South Asia (chiefly India and Pakistan) continued to decline, falling by 7.2% from $1.39 billion to $1.29 billion. The state’s exports to Sub-Saharan Africa in the latest three months amounted to a mere $131 million, down 34.4% from $199 million during the same period twelve months earlier.

By mode of transportation, 47.7% of California’s $39.93 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 28.6% of the state’s export trade by dollar-value, while 23.7% 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.

The Outlook

Beacon Economics does not expect California’s export trade to rebound in the near future. Forecasts of 2016 global economic growth issued in January by organizations such as the World Bank and International Monetary Fund have been uniformly pared back in light of persistent sluggishness in both major and minor economies around the globe. Whatever other consequences stem from Britain’s vote last month to leave the European Union, that move has had the immediate impact of decisively reversing the downward drift in the value of the U.S. dollar from a peak reached early last December. A strong dollar, it bears emphasizing, is not a positive development for California exporters even if our major trading partners were enjoying robust economic growth. The fact that our top export markets are all currently experiencing less than desirable economic conditions leads us to be less than sanguine about the prospects for California’s merchandise export trade.
 

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