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California Exports Slip Narrowly In Latest Numbers

July 7, 2015 - California’s merchandise export trade was narrowly lower in May than during the same month last year, according to Beacon Economics’ analysis of foreign trade data released this week by the U.S. Commerce Department.

The state’s exports of goods to foreign markets in totaled $14.13 billion in the latest numbers, down 0.7% from the $14.23 billion recorded in May 2014. By way of comparison, total U.S. exports of goods saw a 7.2% decline in the same period, while exports from Texas shrank by a full 12.0%.

California’s exports of manufactured goods in May rose 0.3% from $9.20 billion last year to $9.23 billion. However, exports of non-manufactured goods (chiefly agricultural produce and raw materials) declined by 5.5%, from $1.91 billion to $1.81 billion. Re-exports also fell from $3.12 billion to $3.09 billion, a drop of 0.8%.

“What’s most remarkable about these new numbers is just how resilient California’s export trade has been,” said Jock O’Connell, Beacon Economics’ International Trade Adviser. "With China’s economy slowing, Europe in turmoil, key developing economies like Brazil and India faltering, and a strong dollar that has appreciably marked up the price most foreigners have to pay for U.S. goods, a modest 0.7% year-over-year decline in exports is actually something of a triumph."

California’s export trade so far this year is lagging behind last year’s pace by 2.4% due largely to relatively sharp declines in foreign shipments in February and 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., March - May) with the corresponding period one year earlier.

California's merchandise exports during the March-May period totaled $43.49 billion, a nominal decline of 0.5% from the $43.73 billion recorded during the same period twelve months earlier. The state accounted for 11.0% of total U.S. merchandise exports in the latest three months.

California’s export trade is highly diversified. Eleven major categories of goods each accounted for at least $1 billion in exports in the latest three-month period. Among the top ten categories, performance was variable with only five categories showing growth.

On the plus side, topping the export list was Computer & Electronic Products, up 7.6% from $10.36 billion to $11.15 billion. Non-Electrical Machinery exports gained 7.3% from $3.85 billion to $4.13 billion. Exports of Agricultural Products continued to recover from recent declines with a robust 14.1% jump from $3.27 billion to $3.73 billion. Electrical Equipment exports rose 4.0% from $1.76 billion to $1.83 billion. Chemical exports nudged higher by 0.6% from $3.47 billion to $3.49 billion.

On the downside, Transportation Equipment exports fell 7.2% from $4.60 billion to $4.27 billion. Exports of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) were down 3.1% from $3.51 billion to $3.40 billion. Food and Kindred Products exports continued to stagger, down 11.3% from $2.91 billion to $2.58 billion.

Petroleum and Coal Products exports plummeted 26.7% from $2.03 billion to $1.49 billion. Exports of Fabricated Metal Products fell by 14.1% from $1.24 billion to $1.06 billion. Waste & Scrap exports were off 12.0% from $1.26 billion to $1.11 billion.

Mexico continued to rank as California’s single largest export destination during the latest three-month period, with the value of exports rising 15.0% from $6.16 billion to $7.09 billion. Exports to Canada fell by 1.3% from $4.45 billion to $4.39 billion, while shipments to China slipped by 6.8% from $4.16 billion to $3.88 billion. Exports to Japan also declined by 1.7% from $3.17 billion to $3.12 billion. South Korea, up 8.8% from $2.30 billion to $2.51 billion, rounded out California's ‘Top Five’ national export destinations in the March-May period.

Regionally, California's exports to the Asia Pacific region (including Australia and New Zealand) dropped 1.7%, falling from $16.63 billion to $16.35 billion, a dip propelled largely by the fall-off in exports directly to China. California’s exports to the European Union slipped by 0.6% from $7.77 billion to $7.72 billion. California’s exports to Latin America and the Caribbean (excluding Mexico) were down by 16.6%, dropping from $2.89 billion to $2.41 billion. California’s exports to South Asia (chiefly India and Pakistan) were up by 28.3% from $1.08 billion to $1.39 billion. The state’s exports to Sub-Saharan Africa in the latest three months amounted to just $207.4 million, down 5.3% from $219.4 million during the same period twelve months earlier.

By mode of transportation, 45.5% of California’s $43.73 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 31.7% of the state’s export trade, while 22.3% traveled overland by truck or rail to Canada and Mexico.

While considerable attention has been focused in recent months on the economic impact of congestion at the state’s major seaports and the fall-out from a contentious longshore labor contract negotiation, it is worth noting that containerized shipments comprise only about one-fifth of the value of California’s merchandise export trade. On a dollar basis, the state's airports play a considerably more critical role than its seaports in facilitating its merchandise export trade.

The Outlook

While today’s report looks back on recent months, the current concern in the media is what lies ahead for Europe given the likely possibility of another default and exit from the European Union by Greece. Beacon Economics believes the hype far outweighs the reality of the threat. A few years ago Greece did play a significant role in the EU slowdown—but mainly as the canary in the coal mine for wide spread public debt issues across southern Europe. Today, while Greece continues to flounder, other parts of Europe have cleaned up their act. Spain, for example, is now one of the faster growing parts of the region. As a result, the same contagion effects are not being seen this time around.

As for Greece itself? “It simply isn’t significant on its own,” says Christopher Thornberg, Founding Partner of Beacon Economics. “To put it in perspective, the Greek economy has a GDP of about $250 billion—slightly over one-fourth the size of the Los Angeles/Orange County economy.” Of the outstanding debt at play, only $50 billion is still held by the banking system in Europe, compared to $12 trillion in overall assets. “If the Greek government does push their nation out of the Euro zone, the tragedy there will only be added to,” said Thornberg. “But it is unlikely to create any real impacts elsewhere except for the largely pointless short term volatility it will create in the global financial markets.”

Greece is America’s 84th largest export destination, ranking between Ukraine and Ghana. In the latest three months, California’s exports to Greece totaled just $23,8 million.

Beacon Economics’ outlook for California’s merchandise export trade remains guarded. Although the state has an exceptionally diversified export trade, we expect exports to China (the state’s third largest export market) to continue to ebb. Exports to Canada (California’s second largest export destination) have been ebbing lately, largely as a result of unfavorable exchange rates. While we expect modest growth in the state’s exports to Europe, the biggest gains are likely to be seen in California’s exports to Mexico.

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