California export trade, a shining star in the state’s post-recession recovery, is showing signs of fading.
Beacon Economics, which tracks California exports based on U.S. Commerce Department data, reported this month that the value of California goods exported to foreign markets in August totaled $13.24 billion, down nearly 10 percent from $14.55 billion recorded in August 2014.
That was a jolt, given the state’s previous four years of eye-popping successes.
In 2014, California businesses shipped merchandise valued at an all-time record $174.13 billion, surpassing 2013’s record of $168.13 billion by about 3.6 percent. On a straight-up dollar basis, not accounting for inflation, California’s $161.7 billion in merchandise exports in 2012 surpassed 2011’s record of $159.12 billion by about 1.6 percent.
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$13.24 billionThe value of California goods exported to foreign markets in August
Barring a robust last-quarter rally that economists and trade experts do not see happening, the Golden State’s record-breaking string will be broken this year. Through eight months, California export trade is lagging behind last year’s record pace by 3.2 percent, Beacon said.
Economists are somewhat split on what the numbers say about California’s economy.
Christopher Thornberg, an economist and Beacon’s founding partner, noted: “As much as exports are soft and not making as much money, the ag areas are doing fine, tourism is on fire, the housing market is bouncing.”
Sung Won Sohn, a former Wells Fargo chief economist who teaches at California State University, Channel Islands, in Camarillo, was less optimistic, saying “economic growth has begun to slow in California.” But he added: “I think it’s too early to be alarmed.”
The reasons for the recent slide in state exports can be found at home and abroad.
The state has seen a decline in exports of manufactured goods, which account for most of California’s shipments. Exports of non-manufactured goods – mainly agricultural produce and raw materials – have likewise slowed, a byproduct of California’s prolonged drought.
The Sacramento Valley’s rice crop is projected to be at least 30 percent smaller than normal because of water shortages, impacting Northern California growers who supply traditionally strong markets in the Mediterranean and Middle East.
And while prices for almonds – California’s leading agricultural export – have hit record highs, Sacramento-based Blue Diamond Growers noted in its most recent edition of “Almond Facts” that “our recent history has been defined by drought-driven reductions in almond yields (and) almond supply shortages.”
Blue Diamond forecasts the 2015 crop at between 1.7 billion pounds and 1.75 billion pounds, or about 94 percent of the 2014 supply.
Other declines have been all over the lot. In the June-to-August period for example, Beacon said California exports of petroleum and coal products totaled $1.03 billion, down 40.4 percent from a year ago. Beacon noted the decrease was “exacerbated by low oil prices and record high global supplies.”
Beyond California’s borders, the economies of key Golden State trading partners have been wobbling. The biggest concern among those nations is China. From June to August this year, California’s $3.9 billion in merchandise exports to China was down more than 10 percent from $4.36 billion in the same period of 2014. State exports to Canada and Japan also fell year-over-year.
“With all of our principal trading partners plagued by sluggish economic growth, August’s export numbers were discouraging but hardly surprising,” said Jock O’Connell, Beacon’s international trade adviser.
Beacon’s Thornberg acknowledged the negative numbers but stressed that the sky is not falling.
“You’ve got to be a little cautious when you look at everything,” he said. “There are some issues overseas, particularly in China, but that’s not the whole story.”
Thornberg noted that California’s export numbers “look worse than they actually are due to the rapid appreciation of the U.S. dollar over the past year along with globally declining commodity prices.”
He cited U.S. Bureau of Labor Statistics data showing the price of U.S. exports having fallen about 7 percent over the past year: “This implies that real exports are only modestly off the mark, a relief for workers but not so much for companies’ bottom lines.”
Thornberg’s bottom line: “We’re still producing stuff (and) still shipping it overseas. (California businesses) are just not getting as much money for it.”
Thornberg added that he would be much more concerned if exporters were not finding customers for their merchandise.
We’re still producing stuff (and) still shipping it overseas. (California businesses) are just not getting as much money for it.
Christopher Thornberg, an economist and a founding partner of Beacon Economics
Beacon also cited some bright spots amid the recently disclosed August numbers.
California exports of non-electrical machinery totaled $4.02 billion during the June-August period this year, a 9.8 percent year-over-year increase. Beacon said shipments of industrial machinery to Asia drove the gains. Also, Golden State shipments to Mexico, the state’s No. 1 export market, totaled $6.66 billion in the three-month period, up nearly 3 percent from 2014.
Thornberg also said that California’s overall economic condition is sound.“I think part of the problem is that this has been a really crappy recovery, because every time we get some momentum, something happens to slow things down.”
Thornberg cited highly publicized economic struggles in China and Europe and political squabbling over the debt ceiling in Congress as two momentum-killing examples: “It has kept us from achieving more of a real recovery speed.”
Asked about overseas trade prospects, Sohn said: “Clearly, the international segment is becoming a drag, particularly in China … and the drought has become a significant problem that I think will become more evident internationally.”