February 8, 2013 - LOS ANGELES, CALIFORNIA - California's merchandise export trade finished 2012 on a weak note, owing largely to a sharp drop in shipments of electronics components to factories in Mexico, according to an analysis by Beacon Economics of foreign trade data released this morning by the U.S. Commerce Department.

As a result, California's merchandise export trade for all of 2012 fell just short of the mark attained in 2011.

For the month of December, California's merchandise export trade was valued at $13.36 billion, a nominal decline of 1.3% from the $13.53 billion recorded in December 2011. Adjusting for inflation, December exports were down 3.3% from the same month one year earlier.

"The December decline in exports was disappointing but not unexpected," said Beacon Economics' international trade adviser Jock O'Connell. "While the economies of several of our principal trading partners had been moving through a sluggish stage, California's export trade has been severely pummeled by the shrinking worldwide demand for personal computers."

For 2012 as a whole, California merchandise exports totaled $161.70 billion. That represents a nominal gain of 1.6% over 2011 ($159.12 billion), but a real decline of 0.4% when inflation is taken into account.

On a more positive note, the state's merchandise export trade in 2012 still exceeded, even in real terms, the export levels achieved in pre-recession years. On a seasonally-adjusted basis, December's export trade represented a 2.7% increase over November.

"Although computer demand has fallen off, several export sectors including Fruit/Nut, Aircraft/Spacecraft, and Beverages/Spirits posted double-digit growth," said Beacon Economics' director of economic research Jordan Levine. "On a seasonally adjusted basis, December actually increased over November. Below the headline number, things are less dire than they appear."

Indeed, gains in exports of aircraft and aerospace equipment (57.6%), pharmaceutical products (19.1%), and fruits and nuts (14.0%) were notable.

Because more detailed data on specific export commodities and their destinations can vary abruptly from month to month for a variety of factors, Beacon Economics' analysis compares the latest three months with the corresponding period in the preceding year.

That analysis reveals that exports to Mexico, California's leading foreign market, fell by 17.2% in the last quarter of 2012. The fall-off was entirely due to an extraordinarily sharp drop in shipments of "computer guts" - the various components that go into the production of desktop computers and notebooks.

"We have two almost entirely distinct export markets in Mexico," said O'Connell. "One comprises the indigenous economy of 115 million consumers and with that economy, California's export trade remains strong. The problem appears to lie with shipments of electronics components to the mostly foreign-owned assembly plants that exist primarily to produce goods for export, principally to the United States."

O'Connell pointed specifically to the $60.6 million in shipments of computer parts and accessories to Mexico during the last quarter of 2012. In the same quarter one year earlier, that trade was valued at $1.02 billion.

Significant but less dramatic fourth quarter declines were observed in California exports to South Korea (-7.8%), China (-6.4%), Japan (-3.4%), and Canada (-3.3%). Gains were recorded in exports to Taiwan (+7.1%) and, perhaps surprisingly, to the European Union (+2.6%).

Overall, there was a significant (22.9%) fall-off in exports of computers and their components during the past three months. This reflected the continued softness in the worldwide market for desktop computers and notebooks in the face of rising tablet sales.

The outlook for exports over the next few months remains ambiguous. The market for personal computers will likely stay bearish, and California's exports of computer parts and accessories will suffer accordingly. In addition, exports to Japan, our fourth largest export market, are expected to be dampened by the yen's sharp depreciation against the dollar in recent weeks.

Apart from China, Asian currencies fell for a third week amid increasing concern that the yen’s slump might trigger a currency war. Taiwan, California's seventh largest export market, saw its dollar slide to a five-month low this week.

On the other side of the globe, the European Central Bank warned yesterday that the euro’s recent rally against the dollar could hamper economic recovery efforts.

"We appear to be past writing a requiem for the euro," O'Connell said. "Heading into the Year of the Snake, it's competing currency devaluations that will merit a fret line or two."