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California Exports Still Sub-Par

May 4, 2016 - The nominal value of California’s merchandise export trade remained below par in March, with shipments of goods to foreign destinations totaling $13.75 billion, 8.2% below the $14.98 billion recorded in same month last year. The state’s exports of manufactured goods in March fell by 7.7% to $8.95 billion from $9.70 billion one year earlier.

Exports of non-manufactured goods (chiefly agricultural products and raw materials) were off by 28.0% to $1.45 billion from $2.01 billion the previous March. Re-exports, however, edged ahead by 2.6% to $3.35 billion from $3.26 billion. By way of comparison, the value of overall U.S. merchandise exports in March dropped by 6.2%, while exports from Texas fell 9.2%. Florida's export trade was likewise off by 8.5%.

California accounted for 11.0% of the nation’s merchandise export trade in March.

”For a couple of reasons, the fall-off in the state's export trade from a year earlier is not as severe as it looks" said  Jock O’Connell, Beacon Economics’ International Trade Adviser. "For one thing, there was a major surge in seaport activity last year right after the late February 2015 settlement of a months-long longshore labor dispute that had export containers stacked up on the docks." O'Connell noted that the surge last year was particularly noticeable for agricultural exports.

"The yearly decline in trade numbers for the month of March was expected given the big push last year to clear the docks in the aftermath of the labor dispute," said Robert Kleinhenz, Beacon Economics' Executive Director of Research. "This was true of both exporters and importers who could not move their containers through the ports in late 2014 and early 2015, but much of that backlog cleared in March of last year. For the entire first quarter of 2016, inbound and outbound containers at the Los Angeles area ports were both higher than last year, and that's consistent with current fundamentals in the national economy."

Lower export prices this year for a wide range of products California ships to foreign customers also helped drive the nominal decline in the state's export trade. California accounted for 11.0% of the nation's merchandise exports in March.

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., January-March) with the corresponding period one year earlier.

California's merchandise exports during the latest three-month period totaled $37.84 billion, a nominal decline of 5.9% from the $40.20 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 two categories showing year-over-year gains.

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 5.5% from $10.33 billion to $9.76 billion. Exports of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, and their parts) rose 9.5% from $3.80 billion to $4.16 billion. Exports of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) were down 1.6% from $3.35 billion to $3.30 billion.

Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) exports declined 12.4% from $3.82 billion to $3.35 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 1.5% from $3.36 billion to $3.31 billion.

Exports of Agricultural Products declined by 13.0% from $3.31 billion to $2.88 billion. Food and Kindred Products exports were down 10.4% from $2.21 billion to $1.98 billion. Exports of Electrical Equipment (including household appliances) drifted lower by 1.8% from $1.69 billion to $1.66 billion. Exports of Primary Metal Manufacturing Products jumped 46.7% from $745 million to $1.1 billion.

Petroleum and Coal exports collapsed by 43.7% from $1.53 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 7.3% from $1.03 billion to $955 million. Waste & Scrap 24.8% from $903 million to $678 million.

Mexico continued to rank as California’s single largest export destination during the latest three-month period, but with the value of exports slipping 6.6% from $6.44 billion to $6.02 billion. Exports to Canada fell even more, dropping by 9.9% from $4.17 billion to $3.76 billion, while shipments to China declined by 4.3% from $3.39 billion to $3.24 billion. Exports to Japan also struggled, falling by 9.8% from $2.96 billion to $2.67 billion. Rounding out the Top Five California Export Markets in the latest quarter was Hong Kong, up 13.0% from $1.93 billion to $2.18 billion.

The Outlook

Beacon Economics sees reason to expect a marked improvement in California's export trade in the near term. While global economic conditions could obviously be much better, we are encouraged that the dollar has continued to give back some of the value it had gained against most major currencies since the summer of 2014.

More specifically, the Japanese yen, Korean won, Canadian dollar, Mexican peso, and the euro have all moved higher in value against the greenback since the start of the year. With little likelihood the Federal Reserve will raise interest rates before June, the dollar should remain weaker than last year for at least the near term. Meanwhile, low shipping rates, particularly on westbound transpacific routes, should benefit California exporters of goods normally shipped by sea.

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