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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.

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California Exports Slump

June 6, 2016 - The of California’s merchandise export trade skidded lower in April, with shipments of goods to foreign destinations totaling $12.84 billion, 10.8% below the $14.39 billion recorded in same month last year.

The state’s exports of manufactured goods in April fell by 10.6% to $8.43 billion from $9.43 billion one year earlier. Exports of non-manufactured goods (chiefly agricultural products and raw materials) were off by 18.7% to $1.43 billion from $1.76 billion in April of 2015. Re-exports dropped by 7.2% to $2.97 billion from $3.20 billion.

By way of comparison, the value of merchandise exports from Texas fell 11.1%. Florida's export trade was likewise off by 7.8%. California accounted for 11.2% of the nation’s merchandise export trade in April.

”While disappointing, the numbers are not as lousy as they first appear," said Jock O’Connell, Beacon Economics’ International Trade Adviser. "One important factor is that there was a surge in export shipments last April as dockworkers continued to clear a backlog of outbound containers that had piled up during a labor contract dispute that had hamstring port operations for several months.”

Further depressing the latest numbers is the fact that California exporters were generally getting less for the goods they shipped abroad this April. Across a wide array of merchandise categories, export prices this April were substantially lower than they were one year ago, even though those prices have lately started to perk up.

In the end, though, exporters need importers, and right now none of California's leading export destinations are enjoying exemplary economic circumstances. Additionally, U.S. currency is playing a role. "California's trade sector has faced a challenging situation for more than a year, partly because of weak growth among our biggest trading partners but also due to the strong dollar," said Robert Kleinhenz, Beacon Economics' Executive Director of Research. "The news is more encouraging when you look at port activity, with both inbound and outbound container counts higher than they were one year ago through the first four months of 2016."

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., February-April) with the corresponding period one year earlier.

California's nominal merchandise exports during the latest three-month period totaled $38.72 billion, down 7.9% from the $42.05 billion recorded during the same months last year.

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

The state’s leading export category continued to be Computers & Electronic Products, although exports declined by 7.4% from $10.68 billion to $10.18 billion. Transportation Equipment exports fell by 5.6% from $4.36 billion to $4.12 billion. Exports of Chemicals moved higher by 2.1%, rising from $3.36 billion to $3.43 billion. Non-Electrical Machinery exports dropped 11.9% from $4.0 billion to $3.52 billion. Exports of Miscellaneous Manufactured Commodities were up by 3.2% from $3.43 billion to $3.54 billion.

Exports of Agricultural Products slipped by 6.9% from $3.57 billion to $2.97 billion, while exports of Food & Kindred Products dipped by 13.6% from $2.40 billion to $2.07 billion.

Electrical Equipment exports were lower by 7.0%, dropping from $1.76 billion to $1.64 billion. Exports of Fabricated Metal Products slipped by 4.8% from $1.05 billion to $1.0 billion. Petroleum and Coal exports, valued at $1.38 billion one year ago, fell to $861 million in the latest three-month period.

Mexico maintained its status as California's leading export destination, although the value of exports to our southern neighbor tumbled by 10.2% from $6.76 billion to $6.07 billion. The state’s exports to Canada fell even more precipitously, dropping 14.1% from $4.51 billion to $3.87 billion.

Shipments to China slipped by 4.2% from $3.53 billion to $3.8 billion, while exports to Japan were 7.6% lower, down from $3.08 billion to $2.85 billion. South Korea rounded out the state’s top five export markets, even though exports to that nation drooped by 14.6% from $2.38 billion to $2.03 billion. Regionally, California's exports to the Asia Pacific region (Including Australia and New Zealand) declined by 7.1% from $15.59 billion to $14.48 billion.

California's exports to the European Union edged slightly lower (-1.0%), falling from $7.52 billion to $7.45 billion. The state's shipments to Latin America and the Caribbean (excluding Mexico) were off 10.7%, dropping from $2.8 billion to $2.13 billion. Exports to South Asia (chiefly India and Pakistan) slipped lower by 3.8% from $1.32 billion to $1.27 billion. California's exports to Sub-Saharan Africa remained negligible.

By mode of transport, 48.8% of California's $38.72 billion export trade in the February through April period was shipped by air, while 28.0% went by sea. The remaining 23.2% went overland by rail or truck to Canada and Mexico.

The Outlook

Beacon Economics does not foresee year-over-year growth returning to California's export trade industry until economic conditions among the state’s principal export markets improve. Even then, certain non-economic factors may be conspiring to degrade the state's export trade.

Re-exports, for example, currently account for 23% of California's total merchandise export trade. Because much of that trade involves the transshipment of components from Asian-based corporations to their manufacturing and assembly plants in Mexico, recent improvements to rail connections between those plants and Mexico's Pacific Coast seaports could result in a significant diversion of shipments of components that have thus far been shipped via California ports.

Then there are California’s new air quality mandates governing transportation industries, which are likely to increase the cost of transporting goods to markets both here and abroad. These mandates are expected to be announced later this year. Agricultural exporters in the Central Valley complain that it is currently more expensive to haul a container by truck to the Port of Oakland than it is to ship that container from Oakland by sea to Asia. Exporters of rice and other commodities that face foreign competition fear that additional transport costs could price California exporters out of some overseas markets. 

On a more positive note, the poor job creation figures announced last week seem to have dampened expectations that a short-term interest hike is imminent. For exporters contending with an already strong dollar, a delay represents a timely reprieve.
 

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