April 5, 2016 –
California’s nominal value of merchandise exports remained on a down slope in February, with shipments of goods to foreign destinations totaling $12.13 billion, 4.5% below the $12.55 billion recorded in same month last year. The state’s exports of manufactured goods in February fell by 3.8% to $7.72 billion from $8.02 billion one year earlier.
Exports of non-manufactured goods (chiefly agricultural products and raw materials) were off by 7.0% to $1.46 billion from $1.57 billion the previous February. Re-exports meanwhile slipped by 0.4% to $2.95 billion from $2.96 billion. By way of comparison, the value of the overall U.S. merchandise exports in February dropped by 3.9%, while exports from Texas were 7.3% lower.
Much of the decline in trade values are due to prices, according to Christopher Thornberg, Founding Partner of Beacon Economics. “National numbers show that the prices exporters are receiving for their goods have fallen by 7%; on that basis real exports are up,” Thornberg said. “But while volumes are steady, bottom lines are still being hurt by lower prices, particularly in a state that is as expensive to do business in as California.”
California accounted for 10.7% of the nation’s merchandise export trade in February.
Considering the way the global economy has been wobbling of late and the falling prices many California exporters are getting for their products, February’s numbers weren’t too shabby,” said Jock O’Connell, Beacon Economics’ International Trade Adviser.
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., December-February) with the corresponding period one year earlier.
California’s merchandise exports during the latest three-month period totaled $36.92 billion, a nominal decline of 7.4% from the $39.86 billion recorded during the same period last year.
The state’s export trade is highly diversified. In recent years, as many as eleven major categories of goods have each accounted for at least $1 billion in exports each quarter. However, in the most recent quarter, just nine categories hit that mark. Performance also varied, with only two categories showing year-over-year gains.
The state’s leading export category continued to be Computer & Electronic Products (computers and peripherals; communication, audio, and video equipment; navigational controls; and electro-medical instruments). Exports of these items fell 6.6% from $10.58 billion to $9.87 billion. Exports of Transportation Equipment (automobiles, trucks, trains, boats, airplanes, and their parts) were off 4.5% from $4.25 billion to $4.06 billion. Exports of Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) were down 4.4% from $3.13 billion to $3.0 billion.
Non-Electrical Machinery (machinery for industrial, agricultural and construction uses as well as ventilation, heating, and air conditioning equipment) exports declined 14.0% from $3.68 billion to $3.16 billion. Chemical exports (including pesticides and fertilizers; pharmaceutical products; paints and adhesives; soap and cleaning products; and raw plastics, resins, and rubber) moved lower by 3.8% from $3.20 billion to $3.08 billion.
Ag Exports Down 5.8%
Exports of Agricultural Products declined by 5.8% from $3.12 billion to $2.94 billion. Food and Kindred Products exports were down 3.3% from $2.10 billion to $2.03 billion. Exports of Electrical Equipment (including household appliances) rose 4.9% from $1.59 billion to $1.67 billion. Exports of Primary Metal Manufacturing Products jumped 52.3% from $701 million to $1.07 billion.
Petroleum and Coal exports collapsed by 54.1% from $1.72 billion to $791 million. This category includes refined petroleum products, such as gasoline, lubricating oils, and asphalt as well as coal and pet coke.
Mexico continued to rank as California’s single largest export destination during the latest three-month period, but with the value of exports slipping 4.9% from $6.24 billion to $5.94 billion. Exports to Canada fell even more, dropping by 11.4% from $4.17 billion to $3.70 billion, while shipments to China declined by 3.7% from $3.26 billion to $3.14 billion. Exports to Japan also struggled, falling by 11.2% from $3.02 billion to $2.69 billion.
Rounding out the Top Five California Export Markets in the latest quarter was Hong Kong, up 11.6% from $2.01 billion to $2.24 billion.
Regionally, California’s exports to the Asia Pacific region (including Australia and New Zealand) dropped 6.4%, falling from $15.12 billion to $14.16 billion. California’s exports to the European Union actually rose by 1.6% from $6.78 billion to $6.89 billion. The state’s exports to Latin America and the Caribbean (excluding Mexico) were down by 1.5% from $2.32 billion to $2.28 billion. California’s exports to South Asia (chiefly India and Pakistan) continued to plummet, falling by 35.9% from $1.37 billion to $877 million. The state’s exports to Sub-Saharan Africa in the latest three months amounted to a mere $126 million, down 16.6% from $150 million during the same period twelve months earlier.
By mode of transportation, 48.2% of California’s $36.92 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 27.7% of the state’s export trade, while 24.1% traveled overland by truck or rail to Canada and Mexico.
The Outlook
Beacon Economics sees cause to be tepidly optimistic. While most of California’s major trading partners continue to experience some degree of economic, financial, and/or political stress, the dollar has continued to give back some of the value it had gained against most major currencies since the summer of 2014. More specifically, the Japanese yen, Korean won, Canadian dollar, Mexican peso, and the euro have all edged higher in value against the greenback in recent weeks.
Our primary concern remains China and how the country’s leadership copes with a slowing economy. Their often erratic actions over the past year do not inspire confidence. President Xi has shown a distressing tendency to intervene in the economy for short-term political purposes. This continues to hinder China’s transition from an economy driven by exports and public sector investment to one in which household spending plays a more dominant role. That transition will require major structural changes, including the withdrawal of financial support for unprofitable state-owned enterprises, that are probably too politically risky for Xi to push aggressively.
China’s tribulations are a drag on developing economies that had flourished as suppliers to China’s once burgeoning demand for imported goods, especially raw materials and food products. In the likely event Chinese economic growth rates do not continue to decline, the global economy will be in search of another engine (or combination of them) to propel it forward.