California Exports Surge in July

September 4, 2013 - California's exports appeared to rebound strongly in July, according to Beacon Economics' analysis of foreign trade data released this morning by the U.S. Commerce Department.

The state's merchandise export trade totaled $13.98 billion, up a nominal 6.8% over the $13.09 billion in exports recorded in July 2012. By comparison, overall U.S. merchandise exports rose by a nominal 5.1% during the same period.

The uptick in California was led by a jump in manufactured exports, which rose by a nominal 9.7% to $9.41 billion from $8.58 billion last July. An unusually large surge in shipments of civilian aircraft and components to overseas customers this July accounted for much of that increase.

Meanwhile, the state's exports of non-manufactured goods (chiefly agricultural produce and raw materials) edged up slightly to $1.49 billion from $1.45 billion last year. Re-exports also inched up to $3.07 billion from $3.05 billion.

"In light of a near epidemic of economic lethargy throughout much of the world, July's numbers were quite impressive," said Jock O'Connell, Beacon Economics' International Trade Adviser. "With a significant boost from an aircraft/aerospace industry that many felt had all but deserted the state, California's exports of manufactured items actually grew at double the pace of the nation as a whole."

But despite July's strong showing, California's $94.90 billion export trade during the year's first seven months is running marginally behind the $95.05 billion recorded in the same period last year. The analysis cautions against reading too much into month-to-month state export statistics. Significant variations may be attributable to unusual or exceptional one-off trades and may not be indicative of underlying trends. For that reason, Beacon Economics compares the latest three months (May-July) for which data are available with the corresponding period in the previous year.

The longer term comparisons reveal that exports to Mexico, California's largest export market, fell by 13.7%. The fall-off in trade continues to be associated with declines in shipments of components used in the manufacture of personal computers. They also show that California's merchandise exports to China grew by 19.9%. Despite reports of a slowing GDP growth rate, China is on pace to overtake Canada and become California's second largest export market later this year. Japan and South Korea continue to round out the list of the top five foreign customers for California products.

The longer term data also revealed that California's merchandise exports to Europe increased by 13.3%. Approximately 85% of California's exports go to three regions: the North American Free Trade Area (Mexico and Canada); the Asia Pacific region; and Europe. Only about 6% of the state's export trade involves Central and South America (excluding Mexico). California's exports to Africa are miniscule. Through the first seven months of this year, California has exported more to Spain, its 25th largest overseas market, than to all of the African continent.

Beacon Economics' outlook for the remainder of the year is guarded. "The state's exporters have shown remarkable resilience in coping with adverse market conditions abroad," O'Connell said. "Still, we can't overlook the fact that quite a few economies around the globe have lately been shifting into lower gears."

Mexico, for example, recently slashed its GDP growth forecast to 1.8% from 3.1% after its economy shrank in the second quarter. Major emerging markets Brazil and India have seen their currencies plunge to new lows against the dollar, effectively making California goods more expensive to importers in those nations. The Economist magazine anticipates a slight deceleration in world GDP growth this year before a pick-up in 2014.

"That outlook is consistent with our reading of global economic developments," said Beacon Economics' Founding Partner Christopher Thornberg. "With Europe finding a bottom, Japan continuing to stimulate its economy, and with better numbers on consumer spending from China, we continue to hope that fairly robust export growth will return by 2014."

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