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California Exports Slip, Ever So Slightly

September 6, 2017-

Screen Shot 2015-07-07 at 2.26.54 PMCalifornia’s export trade declined modestly in the latest numbers. According to a Beacon Economics analysis of U.S. trade statistics released this morning by the U.S. Census Bureau, foreign shipments of goods by California businesses totaled $13.30 billion in July, a nominal 1.5% decline from the $13.51 billion recorded in July 2016.
“More than anything else, the dip is a reflection of normal mid-summer doldrums,” said Jock O’Connell, Beacon Economics’ International Trade Advisor. “It’s just that this year our export trade was rather more languid than usual.”
Christopher Thornberg, Founding Partner of Beacon Economics sounded a similarly positive tone. “These numbers aren’t as good as seen earlier in the year, but there is no reason to think this data is the start of another slowing,” Thornberg said. “The steady strengthening of the global economy and the fact that the US Dollar has depreciated to levels not seen since early 2015 suggests that exports should show solid signs of growth in the second half of 2017.”
Exports to the European Union were off 9.1% from last July, while shipments to Asia inched ahead by just 0.3%. More buoyant was California’s export trade with NAFTA partners Canada and Mexico, which rose by 2.2% over last July’s level.
The state’s exports of manufactured goods in July slid 2% to $8.38 billion from $8.55 billion one year earlier. Exports of non-manufactured goods (chiefly agricultural products and raw materials) improved by 2.6% to $1.60 billion from $1.56 billion. Re-exports, meanwhile, slipped by 2.4% to $3.32 billion from $3.40 billion.
California accounted for 10.9% of the nation’s overall merchandise export trade in July. Through the first seven months of 2017, the state’s exports are running 5.9% ahead of last year’s pace.
California Imports Rise
The U.S. Department of Commerce identifies California as the state-of-destination for 18.5% of all U.S. merchandise imports in July, with a value of $26.53 billion, 9.1% higher than the $33.47 billion in imported goods in July 2016. Manufactured imports totaled $33.27 billion, up 8.6% from $30.64 billion last year. Non-manufactured imports in July were valued at $3.26 billion, fully 15.2% higher than the $2.83 billion recorded one year earlier. Beacon Economics cautions that a significant share of imports attributed to California end up elsewhere in the U.S. We accordingly discourage efforts to use state import data to calculate a California “balance-of-trade” figure.
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 can 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., May-July) with the corresponding period one year earlier.
California’s merchandise exports during the year’s second quarter totaled $41.86 billion, a nominal gain of 0.9% from the $41.47 billion in the same months last year.
Of the state’s ten leading categories of exports, only six saw increases.
On the plus side, the list was topped by shipments of Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments), which eked out a 0.6% gain to rise to $10.44 billion from $10.38 billion. Exports of Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) powered ahead 15.1 % to $4.21 billion from $3.66 billion.
Agricultural exports were up 2.0% to $3.08 billion from $3.02 billion, while shipments abroad of Food & Kindred goods rose 7.3% to $2.24 billion from $2.09 billion.
Exports of Electrical Equipment and Appliances jumped up 11.2% to $1.89 billion from $1.70 billion. Exports of Fabricated Metal Products rose 3.5% to $1.04 billion from $1.01 billion.
On the downside, exports of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, and their parts) fared poorly, dropping 4.5% to $4.51 billion from $4.72 billion. Shipments abroad of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) slipped 1.2% to $4.14 billion from $4.18 billion.
Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) also declined by 6.0% to $3.09 billion from $3.28 billion. Exports of Primary Metal Manufacturing products plummeted by 47.6%, falling to $721 million from $1.37 billion as shipments to China, Japan, Singapore and the United Kingdom all dropped precipitously.
Mexico easily held its status as California’s most important export destination during the last quarter. Shipments south of the border grew by 7.8% to $6.64 billion from $6.16 billion. Canada retained its historic rank as California’s second largest export market during the latest three-month period with shipments valued at $4.29 billion, a slight 1.5% bump from $4.23 billion during the same period last year. Exports to China jumped 15.0% to $4.13 billion from $3.59 billion. In fourth place was Japan, which saw its import trade from California expand by 5.9% to $3.01 billion from $2.84 billion. Hong Kong (up 9.0% to $2.53 billion from $2.32 billion) edged out South Korea (up 21.7% to $2.43 billion from $2.0 billion) for fifth place.
The state’s export trade with the economies of East Asia expanded by 4.5%, to $15.37 billion from $14.71 billion.  By contrast, California’s exports to the European Union tumbled by 5.9 %, to $7.32 billion from $7.78 billion. Mexico and Canada, America’s partners in the North American Free Trade Area, accounted for 26.1% of California’s merchandise export trade in the latest three-month period, up from 24.1% one year ago.
By mode of transport, 49.3% of the state’s $41.86 billion merchandise export trade in the May-July period went by air, while waterborne transport carried 27.2% of the outbound trade. The balance of exports travelled overland to Canada and Mexico.
The Outlook
The near-term economic outlook for California exporters remains positive. It is on the policy front that conditions may rapidly deteriorate during the remainder of this year.
Two weeks ago, the Organization for Economic Cooperation and Development (OECD) reported that all 45 of the major world economies it regularly monitors were growing at the same time. The currencies of our principal trading partners have also strengthened against the dollar, which should make U.S. goods and services less expensive for foreigners to buy. Even the Chinese yuan, the subject of currency manipulation charges during last year’s presidential campaign, has appreciated against the dollar by around 6% so far this year.
The discouraging word comes on the public policy front. President Trump, occasionally at sharp odds with high-ranking members of his administration, appears to be gearing up for major trade policy confrontations with a host of America’s largest trading partners (including many of our military allies). The president’s target list includes China, Japan, South Korea, Germany, Canada, and Mexico – countries that collectively account for half of California’s merchandise export trade.

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