California Trade Report

OVERVIEW

California’s share of the nation’s merchandise export trade in November remained well below pre-pandemic levels, according to a Beacon Economics’ analysis of U.S. trade statistics released this morning by the U.S. Census Bureau.

The state’s share of the $170.691 billion in U.S. merchandise exports in November was 8.6%, down from an 8.7% share in October. In November 2021, the state accounted for 9.5% of all U.S. merchandise exports. In pre-pandemic 2019, California’s share was as high as 10.7%.

Nominally, California exported goods valued at $14.713 billion in the year’s penultimate month, a 1.1% dip from the $14.884 billion recorded in November 2021. Exports of manufactured goods this November rose by 5.9% to $9.548 billion from $9.020 billion one year earlier. The state’s exports of agricultural products and raw materials plunged by 25.8% to $1.740 billion from $2.344 billion. Re-exports, meanwhile, edged up 2.7% to $3.425 billion from $3.519 billion. Year-to-date, the state’s exports have totaled $170.326 billion, 6.0% ahead of the $160.744 billion recorded at this point one year earlier.

“It’s not just that California’s export trade has been languid. It’s that 39 other states have seen higher rates of export growth through the first eleven months of 2022,” said Jock O’Connell, Beacon Economics’ International Trade Adviser. “Our exports were almost uniformly down in November, with particularly sharp year-over-year declines in agricultural products, industrial machinery, and miscellaneous manufactured commodities.”

CALIFORNIA IMPORTS FALL

According to import statistics compiled by the U.S. Department of Commerce, California was nominally the state-of-destination for 14.7% of all U.S. merchandise imports in November, with a value of $37.556 billion, a nominal 10.6% decline from the $42.004 billion in imported goods in November 2021. Manufactured imports this November totaled $32.675 billion, down by 12.6% from $37.376 billion one year earlier. Non-manufactured imports this November were valued at $4.881 billion, 5.4% higher than the $4.629 billion in imported goods recorded in the previous November.

Year-to-date, $470.182 billion in imported merchandise entered California, up 9.8% from $428.406 billion in 2021. Through November, California’s share of all merchandise imports in 2022 is 15.7%, down from 16.6% share at this point one year earlier.

Readers are reminded that Beacon Economcs has long taken a skeptical view of the federal government’s state-of-destination statistics. The data’s fundamental shortcoming is that they capture not just goods that are consumed by California residents or used by California businesses but also a sizeable quantity of imported merchandise that is offloaded at California ports but is bound for markets elsewhere in the country.

(To calculate a California state trade balance, please see our caveats about state-of-destination import statistics at the end of this report.) 

A CLOSER LOOK AT THE NUMBERS

As always, Beacon Economics cautions against reading too much into month-to-month fluctuations in state trade statistics, especially when focusing on specific commodities or destinations. Significant variations can occur as the result of unusual developments or exceptional one-off trades and not be indicative of underlying trends. For that reason, Beacon Economics compares the latest three months for which data are available (i.e., September-November) with the corresponding months one year earlier. Please be aware the numbers cited below are nominal values. In other words, the dollar values cited for the past three months should be discounted to reflect higher export prices.

LEADING EXPORT COMMODITIES

California’s merchandise exports during the past three months totaled a nominal $45.816 billion, a gain of 2.4% from the $44.751 billion exported in the same period one year earlier. Of the eleven commodity groups with exports in excess of $1 billion in the latest three months, all but four registered nominal year-over-year gains.

On the upside, shipments of Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments) rose by 6.6% to $10.734 billion from $10.074 billion.

Exports of Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) increased by 2.9% to $5.229 billion from $5.082 billion. Surging shipments of electric vehicles were behind a sharp 31.0% jump into the value of California’s exports of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, rockets, and their parts) to $4.436 billion from $3.386 billion.

Shipments abroad of Food & Kindred products gained by 5.5% to $2.998 billion from $2.843 billion. Exports of Electrical Equipment and Appliances inched up by % to $ billion from $1.907 billion. Petroleum and Coal exports leapt by 40.7% to $1.304 billion from $926 million one year earlier. Exports of Fabricated Metal Products increased by 7.8% to $1.259 billion from $1.168 billion.

On the downside, Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) dropped by 9.0% to $4.436 billion from $4.596 billion.

Shipments of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) slipped by 2.2% to $3.370 billion from $3.444 billion. Agricultural exports slumped by 21.2% to $3.331 billion from $4.228 billion. Foreign shipments of Waste & Scrap materials plunged by 24.5% to $1.163 billion from $1.541 billion.

DESTINATIONS

Mexico had no difficulty staying atop the roster of California’s top export markets during the latest three-month period. Shipments to our southern neighbor rose by 10.0% to $7.851 billion from $7.137 billion. Second-place Canada increased its imports of California goods by 3.7% to $5.099 billion from $4.916 billion. Exports to third-place China were up 2.5% to $4.717 billion from $4.601 billion. In fourth place was Japan, which purchased $2.804 billion in imports from California, down 9.4% from $2.804 billion. Fifth place South Korea saw its imports from the Golden State sip by 0.9% to $2.546 billion from $2.549 billion.

Seven other destinations each recorded a billion dollars in California exports in the September-November 2022 period. They were Taiwan ($2.367 billion); the Netherlands ($1.522 billion); Germany ($1.502 billion); India ($1.287 billion); Hong Kong ($1.494 billion); Singapore ($1.265 billion); and the United Kingdom ($1.111 billion).

The state’s export trade with the economies of East Asia declined by 2.2% to $16.140 billion from $16.504 billion. By comparison, California’s exports to the European Union (now including Croatia) edged up by 1.3% in the latest three months to $7.688 from $7.587 billion. Mexico and Canada, America’s partners in the North American Free Trade Area, accounted for 28.3% of California’s $45.816 billion merchandise export trade in the latest three months as the nominal value of shipments to our immediate neighbors surged by 7.4% from one year earlier to $12.950 billion from $12.053 billion.

MODE OF TRANSPORT

During the latest three-month period, 47.8% of the state’s $45.816 billion merchandise export trade went by air, while waterborne transport carried 25.6% of the outbound trade. The balance of the state’s exports largely travelled overland to Canada and Mexico.

THE OUTLOOK

The new year is certainly off to an awkward start.

Apart from the inauspicious opening of the 118th Congress, the CEOs of nearly all of the nation’s major banking institutions as well as the usual array of television pundits, newspaper columnists, and bloggers have convinced themselves that the U.S. economy is heading into a recession this year. The only question, they argued, is how long and how deep the recession will go and how to apportion the blame. Of course, virtually all of these same opinion-makers had us down for a recession starting during last year’s third quarter or most certainly in the recently concluded fourth quarter.

Beacon Economics’ outlook is much less gloomy than the consensus view. If anything, the worst thing we have to fear is that such widespread prophecies easily become self-fulfilling. We do not think the U.S. economy is currently in a recession and the nation is unlikely to fall into one in 2023, despite the lack of overall GDP growth. The economy is operating at capacity, which is the exact opposite of what economists refer to as a ‘recession’. Importantly, U.S. households are sitting on over $4 trillion in checking account balances, almost five times as much as pre-pandemic. So consumer demand will remain strong based on wealth effects alone, which will help carry the economy in the new year.

Today’s maladies of inflation, declining asset prices, rising interest rates, and frozen housing markets are all symptoms of the nation’s hangover from the pandemic stimulus. There is no reason to think this hangover will devolve into a full-blown recession. That said, however, if the Fed continues to raise rates until something snaps in the lending markets, it could cause a downturn. If the Fed moderates, then the economy will likely ride out the bumps being caused by inflation and asset price declines and achieve the proverbial ‘soft landing’.

Economic conditions abroad are much more troubling. The International Monetary Fund now warns that one-third of the global economy will slip into recession this year as the U.S., E.U., and China all see their economies slow. The war in Ukraine, rising prices, higher interest rates, and the spread of COVID in China weigh on the global economy. Even for those economies that technically avoid recession, the IMF cautioned that hundreds of millions of people will experience some measure of hardship, which is likely to have an adverse impact on exports from the U.S. and California. Offsetting that concern is the fact that the dollar has lately been weakening against the currencies of many of its biggest trading partners.

For California exporters, contract talks between the International Longshore and Warehouse Association and the Pacific Maritime Association continue. The former contract expired on July 1, and the uncertainties have resulted in the diversion of shipping to East and Gulf Coast ports. Still, the adverse logistical issues that previously hampered exports have been rapidly receding. Ocean shipping rates have plummeted from record highs, while congestion has substantially eased at the nation’s ports and rail hubs.