October 11, 2012 - LOS ANGELES, CALIFORNIA - Reflecting increasingly anemic economic conditions abroad, California's merchandise export trade shrank in August, according to an analysis by Beacon Economics of foreign trade data released this morning by the U.S. Commerce Department.

The value of goods shipped abroad by California businesses in August totaled $13.22 billion, a nominal decrease of 5% from the $13.91 billion recorded in August 2011 (adjusted for inflation, the fall-off was 7.2%). This matches the national slowing of exports as well as the softening seen in industrial production in August.

“With even our relatively healthier overseas markets turning more sclerotic, August's numbers are hardly surprising,” said Jock O’Connell, Beacon Economics' International Trade Adviser. "It doesn't matter much if you're offering the best products at the most attractive prices; if buyers aren't buying, you're not selling."

California’s exports of manufactured goods were off by 4.5% from $9.12 billion last August to $8.71 billion this August. Non-manufactured exports (chiefly raw materials and agricultural products) declined by 6.8% from $1.62 billion to $1.51 billion, while re-exports fell 5% from $3.16 billion to $3.0 billion.

Even so, Beacon Economics' analysis points out that California's exporters remain on a pace to exceed the inflation-adjusted export numbers they posted in 2008, the peak pre-recession year for the state's merchandise export trade.

Another encouraging factor is that the dollar continues to trade about 5% below its mid-summer highs, making American products that much cheaper abroad. "The fact that Bernanke and the Federal Reserve have decided to embark upon QE3 will likely keep the dollar weak," says Beacon Economics' founding partner Christopher Thornberg. "This should help improve the export picture for the rest of the year."

O'Connell said he is nervously optimistic about the next several months because, while economic growth rates have been decelerating nearly everywhere, the economies of California's principal trading partners outside of Europe continue to expand.

Earlier this week, the International Monetary Fund issued a new forecast for Canada that expects economic growth to be 1.9% this year and 2% in 2013. The IMF's latest outlook for California's single largest export market, Mexico, calls for growth of 3.8% in 2012 and 3.5% in 2013.

Together, Mexico and Canada currently account for 28% of California's merchandise export trade.

China, which absorbs 8.6% of California's export trade, is expecting to see its economy grow by 7.5% this year.

Europe's fiscal and economic malaise, however, continues to poison the well springs of the global economy, and the prospects for imminent recovery are not evident. "It's definitely not a good omen for Europe when McDonald's feels obliged to cut menu prices in Germany and France," O'Connell said.

Still, Thornberg notes that recent stimulative efforts by the European Central Bank and the Chinese central government will likely stabilize the current situation, if not improve it.