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.
December 5, 2014 - Despite increasingly adverse economic conditions abroad, congestion at the state’s major seaports, and the drought, state exporters managed to keep pace in October, according to a Beacon Economics' analysis of foreign trade data released this morning by the U.S. Commerce Department.
California’s merchandise export trade in October totaled $15.53 billion. “This represents a nominal 1.2% gain over the $15.35 billion in exports recorded in October 2013, while in inflation-adjusted terms it amounted to a very slight decline,” said Jock O’Connell, Beacon Economics International Trade Advisor.
Exports of manufactured goods dropped 0.9% to $9.57 billion from $9.66 billion last October. Exports of non-manufactured goods (chiefly agricultural produce and raw materials) edged up 0.6% to $2.37 billion from last October’s $2.35 billion. Re-exports meanwhile showed a healthy gain, rising by 7.4% to $3.58 billion from $3.34 billion.
California’s nominal 1.2% increase in exports in October lagged the overall 2.2% increase in U.S. exports. But this is an anomaly relative to most of the year. California’s overall 2014 merchandise export trade through October totaled $144.51 billion, 4.5% ahead of the $138.31 billion reported at this juncture last year (for the U.S. overall, year-to-date growth is less than 3%). That means that despite October's showing, the state remains on course to set an all-time record for merchandise exports this year.
“We see these numbers in the glass half full mode” said Christopher Thornberg, Founding Partner of Beacon Economics. “One effect of the recession was a sharp depreciation of the dollar and a corporate sector that focused on efficiency since growth was not much of an option over the last few years. Both of these have meant that U.S. exporters can compete even in the midst of a weak global economy.”
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., August-October) with the corresponding period one year earlier.
California's merchandise exports during the latest August-October period totaled $44.52 billion, a nominal increase of 2.7% from the $43.35 billion recorded during the same period last year. The state accounted for 10.7% of total U.S. merchandise exports over the latest three months.
California’s export trade is highly diversified, with eleven different major categories of goods each accounting for at least $1 billion in exports during the latest three months.
Performance, however, was highly variable, with 15 of 33 categories showing declines in exports from the same period last year. Topping the export list in this year’s August-October period was Computer & Electronic Products (+5.6% from $10.78 billion to $11.39 billion); Transportation Equipment (-1.8% from $4.94 billion to $4.85 billion); Non-Electrical Machinery (-2.9% from $3.92 billion to $3.81 billion); Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods), was up 1.7% from $3.60 billion to $3.66 billion; and Chemicals (+11.9% from $3.30 billion to $3.70 billion).
Exports of agricultural produce were down 5.9% from $3.73 billion to $3.51 billion in the latest three-month period from one year ago, while exports of processed food products decreased by 7.6% from $2.65 billion to $2.50 billion. Exports of Petroleum and Coal Products, which had been increasing briskly over the past three years, saw a 4.7% decline in the period from $1.64 billion to $1.56 billion.
Mexico remained the single largest destination for California exports during the latest three-month period, with the value of exports increasing by 5.8% from $6.33 billion to $6.70 billion. Exports to Canada declined by 5.2% from $5.12 billion to $4.86 billion, while shipments to China increased by 1.8% from $4.12 billion to $4.19 billion. Japan (-6.9% from $3.19 billion to $ 2.97 billion) and Hong Kong (+12.9% from $2.16 billion to $ 2.43 billion) rounded out California's ‘Top Five’ export destinations in the August-October period.
Regionally, California's exports to the Asia Pacific region (including Australia and New Zealand) increased by 1.56% from $17.05 billion to $17.32 billion. Exports to the European Union increased by 3.3% from $7.07 billion to $7.30 billion. California exports to Latin America and the Caribbean (excluding Mexico) increased by 24.9% from $2.32 billion to $2.90 billion. The state’s exports to Sub-Saharan Africa amounted to only $193.47 million, up 0.2% from the same period last year.
By mode of transportation, 43.7% of California’s $44.52 billion merchandise export trade in the most recent three-month period 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 31.5% of the state’s export trade, while the remaining 24.8% of the state’s exports of goods traveled overland by truck or rail to Canada and Mexico.
Year-to-date, California’s merchandise export trade ($144.51 billion) represented a 4.5% gain over the first ten months of last year. California thus remains on a path to achieve its best export year ever.
California Exports: The Near Term Outlook
Looking ahead, one increasingly serious constraint on the state’s export trade, especially trade in containerized goods, is the unresolved traffic congestion and labor-management issues at West Coast seaports.
"We see evidence in the most recent numbers not only of the global economic slowdown but also of two factors closer to home: congestion at the state’s major seaports that is slowing export shipments and the lingering drought’s impact on our agricultural export trade,” said O’Connell.
Starting earlier this year, shortages of the chassis needed to transport containers to railyards, transloading facilities, or distribution centers slowed the movement of containers in and out of the ports. At the same time, port infrastructure was being stressed by the appearance of newer and larger vessels disgorging ever greater numbers of containers.
Adding to challenge of moving goods expeditiously, the International Longshore and Warehouse Union, working without a contract since July 1, has lately slowed the pace of container handling at ports up and down the West Coast. Regardless of the cause, port congestion will affect exports at most California seaports for at least the next few months.
One factor in California’s favor, O’Connell said, is that the state exports billions of dollars in components overland to assembly plants in Mexico and Canada where they are used to manufacture products for sale in the U.S. “So long as the U.S. economy continues to expand, California’s export trade is at least partially buffered from the economic travails we’ve been seeing abroad and on the waterfront,” he said.
“The good news in all this is that the domestic economy continues to expand despite weaker numbers abroad, as attested to by the sharp increase in jobs we have seen over the last few months,” said Thornberg. “But this also means that the U.S. dollar will continue to rise as investors expect the Federal Reserve to start tightening before other major central banks. Because of this, we expect exports to be less of a driver of growth for at least the next year.”
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