March 4, 2016 –
Ag Products Fall 7.9 Percent
California’s merchandise export trade began this year as it ended last year – on a downward slope, according to Beacon Economics’ analysis of foreign trade data released this morning by the U.S. Commerce Department. The value of the state’s exports totaled $11.96 billion, down 5.6% from the $12.67 billion recorded in January 2015.
California’s exports of manufactured goods in January slipped by 3.0% to $7.83 billion from $8.07 billion one year earlier. Exports of non-manufactured goods (chiefly agricultural products and raw materials) were down by 7.9% to $1.28 billion from $1.39 billion the previous January. Re-exports meanwhile declined by 10.9% to $2.86 billion from $3.21 billion.
By way of comparison, the value of the overall U.S. merchandise exports in January dropped by 10.7%, while exports from Texas were 11.3% lower. California accounted for 11.0% of the entire nation’s merchandise export trade in January.
“We can go glass-half-full or glass-half-empty on these numbers, and I prefer the former,” said Christopher Thornberg, Founding Partner of Beacon Economics. He indicated that over half the decline can be explained by prices, meaning overall real declines were in the 2.6% range. “When you consider the fact that the dollar is 15% more expensive than it was a couple years ago, the global commodity glut that is hitting the BRIC countries, and global stock market volatility, I would say that these numbers look pretty good. It’s a tough environment and California exporters are plowing through,” he said.
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., November-January) with the corresponding period one year earlier.
California’s merchandise exports during the latest three-month period totaled $37.65 billion, a nominal decline of 10.6% from the $42.12 billion recorded during the same period last year.
California’s export trade is highly diversified. Normally, as many as eleven major categories of goods each account for at least $1 billion in exports each quarter. However, in the most recent quarter, only nine categories hit that mark. Petroleum and Coal (down 60.0% to $795 million) and Scrap & Waste Materials (down 28.4% to $683 million) fell from the $1 billion per quarter rank.
Overall, performance varied, with only two categories showing year-over-year gains.
On the plus side, Electrical Equipment exports edged up 1.2% from $1.68 billion to $1.60 billion. Exports of Primary Metal Manufacturing Products jumped 43.8% from 732 million to $1.05 billion.
On the downside were the remaining major categories. Exports of Computer & Electronic Products fell by 8.4% from $11.17 billion to $10.23 billion. Transportation Equipment exports were down 11.1% from $4.54 billion to $4.04 billion. Chemical exports moved lower by 3.5% from $3.29 billion to $3.18 billion. Non-Electrical Machinery exports declined by 12.6% from $3.73 billion to $3.26 billion. Exports of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) were down 13.9% from $3.16 billion to $2.72 billion. Exports of Agricultural Products fell 10.0% from $3.60 billion to $3.24 billion. Food and Kindred Products exports were down 5.0% from $2.24 billion to $2.13 billion.
Mexico continued to rank as California’s single largest export destination during the latest three-month period, but with the value of exports slipping 6.5% from $6.45 billion to $6.03 billion. Exports to Canada fell even more, dropping by 13.2% from $4.50 billion to $3.91 billion, while shipments to China declined by 6.0% from $3.44 billion to $3.24 billion. Exports to Japan also dipped by 4.3% from $2.96 billion to $ 2.83 billion.
Rounding out the Top Five California Export Markets in the latest quarter was South Korea, plummeting 18.7% from $2.38 billion to $1.94 billion.
Regionally, California’s exports to the Asia Pacific region (including Australia and New Zealand) dropped 9.3%, falling from $15.98 billion to $14.49 billion, a dip driven largely by a 6.0% fall-off in exports directly to China. California’s exports to the European Union were essentially unchanged, slipping from $7.01 billion to $7.0 billion. California’s exports to Latin America and the Caribbean (excluding Mexico) were down by 11.5% from $2.50 billion to $2.22 billion. California’s exports to South Asia (chiefly India and Pakistan) were off by 50.5% from $1.62 billion to $803 million. The state’s exports to Sub-Saharan Africa in the latest three months amounted to just $145 million, down 8.3% from $158 million during the same period twelve months earlier.
By mode of transportation, 47.1% of California’s $37.65 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 28.4% of the state’s export trade, while 24.5% traveled overland by truck or rail to Canada and Mexico.
The Outlook
Looking ahead, Beacon Economics finds some reason for optimism. While most of the state’s major trading partners continue to experience economic challenges, the dollar has begun giving up some of the value it had gained against most major currencies since the summer of 2014. The currencies of the state’s top five export destinations have all been regaining value against the dollar in recent weeks.
The most serious concern on the horizon remains China and how China’s leaders deal with the nation’s economic slowdown. Their actions over the past year, including a sixth interest rate cut over the past several months, do not inspire confidence. On Wednesday, Moody’s Investor Service lowered its outlook for China from stable to negative, citing “uncertainty about the authorities’ capacity to implement reforms.” Much attention in the western media has focused on China’s efforts to transition from an economy driven by exports and public sector investment to one in which household spending plays a more dominant role as it does in developed economies. That transition will require major structural changes, including the withdrawal of financial support for unprofitable state-owned enterprises, that are likely to be politically risky. The meetings of the National People’s Congress in Beijing next week may shed light on how President XI intends to proceed.