California Export Trade Listless Again; ‘Re-Exports’ The Culprit
August 6, 2013 – LOS ANGELES, CALIFORNIA – California’s exporters essentially treaded water in June, according to Beacon Economics’ analysis of foreign trade data released this morning by the U.S. Commerce Department.
Nominally, California exports this June ($15.23 billion) were higher than last June ($15.18 billion), however, that apparent 0.3% gain was negated by inflation.
“June was another of those ‘apparently up but actually down’ months,” said Jock O’Connell, Beacon Economics’ International Trade Adviser. California’s exports of manufactured items rose nominally from $9.71 billion last June to $9.81 billion this June. Meanwhile, the state’s exports of non-manufactured goods (chiefly agricultural produce and raw materials) also edged up, from $1.59 billion to $1.64 billion.
However, re-exports declined from $3.89 billion to $3.79 billion. Through the first half of the year, California’s overall $80.92 billion export trade is running slightly behind the $81.97 billion recorded in the same period last year. This slowness reflects trends seen at the national level, where exports are roughly the same as last year through June.
But this is not fundamental to the U.S. or California economy, according to Christopher Thornberg, Beacon Economics’ Founding Partner. “With the US dollar 20% weaker (in real terms) today than it was a decade ago, products produced here are more competitive than they have been in a long time,” said Thornberg. “The issue is that global trade has more or less stopped growing with Europe in a recession and China seeing slower expansion.”
Because data on specific export commodities and their destinations can vary abruptly from month to month for a host of reasons, Beacon Economics compares the latest three months (April-June) for which data are available with the corresponding period in the previous year. Mexico remains California’s top export market, despite a 15.4% drop in shipments. Canada retained its rank as the state’s second largest customer, although China is quickly closing the gap. Japan and South Korea continue to round out the list of the top five foreign customers for California products.
The data revealed at least a couple of other intriguing facts. “While it may seem counter-intuitive, California’s merchandise export trade with Europe has been up nearly 13% over the latest three months,” O’Connell said. By contrast, the state’s exports to the Far East declined by 3.2% during the same period, despite a 16.9% jump in the value of shipments to China.
As has been the case since late last summer, a substantial decline in exports of personal computer components has been the primary factor in restraining California’s export trade. In the latest three months, the state’s exports of those items fell 21% from the same period a year earlier. “Consumer preference for smartphones and tablets over PCs has prompted a thorough restructuring of global supply chains in the electronics components sector,” O’Connell said. “Clearly, this shake-out has yet to run its course.”
The decline hasn’t dramatically affected the tech-heavy San Francisco Bay Area economy, however. “San Jose and San Francisco continue to be two of the strongest economies in the state,” said Thornberg. As mentioned, it is re-exports, products that are shipped in from one nation and then shipped back out to another nation in essentially the same form, that make up the bulk of the decline (for example, U.S. companies often import computer components from Asia and then ship them to Mexico for assembly).
“Re-exports are typically goods in transit, and their contribution to the state’s economy is comparatively negligible,” O’Connell said. “They may support a very small number of jobs in the transportation and warehousing sector and they may profit the firms that orchestrate these transactions, but that’s about it.”
Beacon Economics’ current outlook for the state’s exporters is for modest rather than robust growth. The new U.S. competitiveness has allowed exports to remain stable despite grim news on the global front. However, in the short term the United States and California will have to look internally for growth, which is being helped by a resurgent housing market and rising worker incomes.
“It does appear that Europe has found a bottom, and with Japan continuing to stimulate their economy and better numbers on consumer spending from China, we hope that export growth will return by next year,” Thornberg said.