The value of California’s merchandise export trade declined in March, falling 2.9% from the same month last year, according to a Beacon Economics analysis of foreign trade data released this morning by the U.S. Commerce Department. The state’s exports of goods to foreign markets in March totaled $14.98 billion, down from the $15.43 billion recorded in March 2014. By way of comparison, total U.S. exports of goods saw a 6.1% decline over the same period, while exports from Texas plunged by 12.1%. California’s exports of manufactured goods fell by 5.8% from $10.29 billion to $9.70 billion. However, exports of non-manufactured goods (chiefly agricultural produce and raw materials) rose by 4.4%, from $1.93 billion in March 2014 to $2.02 billion. Re-exports meanwhile edged ahead by 1.9% from $3.20 billion to $3.26 billion. “Given that February saw a nearly 9% falloff in California’s merchandise exports, an optimist could interpret March’s much smaller decline as a rebound in trade,” said Jock O’Connell, Beacon Economics’ International Trade Adviser. “Farm exports showed an especially strong recovery,” O’Connell said. He points to industry reports indicating that foreign shipments of almonds (California’s leading agricultural export) jumped by 42.0% over last March, while walnut exports surged by 77.2%. A Closer Look At The Numbers As always, Beacon Economics cautions against reading too much into month-to-month fluctuations in state export statistics, especially when focusing on specific commodities or destinations. Significant variations may occur as the result of unusual developments or exceptional one-off trades and may not be indicative of underlying trends. For that reason, Beacon Economics compares the latest three months for which data are available (i.e., January 2015-February 2015) with the corresponding period one year earlier. California’s merchandise exports during this year’s first quarter totaled $40.20 billion, a nominal decline of 4.4% from the $42.05 billion recorded during the same period twelve months earlier. The state accounted for 10.8% of total U.S. merchandise exports in the latest three months. California’s export trade is highly diversified. Normally, eleven major categories of goods have each accounted for at least $1 billion in exports in the first quarter. However, the January-March period saw that number fall to ten, as exports of Waste and Scrap fell below the $1 billion threshold. Among the remaining categories, performance was variable, with only four categories showing growth. Topping the export list in latest three-month period was Computer & Electronic Products, up 4.0% from $9.93 billion to $10.33 billion. Also showing a gain was Non-Electrical Machinery, up 3.5% from $3.69 billion to $3.82 billion. Likewise, Electrical Equipment exports rose 4.7% from $1.62 billion to $1.69 billion. Transportation Equipment declined by 17.1%, falling from $4.58 billion to $3.80 billion. Miscellaneous Manufactured Commodities (a catchall category of merchandise ranging from medical equipment to sporting goods) were down 1.8% from $3.41 billion to $3.35 billion. Exports of Chemicals fell 2.8% from $3.46 billion to $3.36 billion. Petroleum and Coal Products exports also fell, declining 24.0% from $2.01 billion to $1.53 billion. Exports of Fabricated Metal Products sagged, slipping by 1.1% from $1.04 billion to $1.03 billion. Agricultural Products turned around from recent declines, edging up 2.9% from $3.21 billion to $3.31 billion. But Food and Kindred Products continued to stagger, down 17.2% from $2.67 billion to $2.21 billion. Mexico continued to rank as California’s single largest export destination during the latest three-month period, with the value of exports increasing 9.0% from $5.91 billion to $6.44 billion. Exports to Canada fell 4.2%, dropping from $4.35 billion to $4.17 billion, while shipments to China tumbled by 13.1%, falling from $3.90 billion to $3.39 billion. Shipments to Japan also declined, down 5.7% from $3.14 billion to $2.96 billion. South Korea (up 6.7% from $2.18 billion to $2.33 billion) rounded out California’s ‘Top Five’ export destinations in the first quarter of 2015. Regionally, California’s exports to the Asia Pacific region (including Australia and New Zealand) dropped 5.2%, falling from $15.83 billion to $15.01 billion, a dip propelled largely by the fall-off in exports directly to China. California’s exports to the European Union were off by 3.7%, slipping from $7.49 billion to $7.22 billion. California’s exports to Latin America and the Caribbean (excluding Mexico) fell by 12.5%, dropping from $2.67 billion to $2.34 billion. The state’s exports to Sub-Saharan Africa in the latest quarter amounted to just $158.8 million, down 23.0% from $206.3 million during the same period twelve months ago. By mode of transportation, 47.4% of California’s $40.20 billion merchandise export trade in the last three months was shipped by air, with Los Angeles International and San Francisco International Airports accounting for the vast majority of the state’s airborne trade. Seaports handled 30.1% of the state’s merchandise export trade, while the remaining 22.5% traveled overland by truck or rail to Canada and Mexico. U.S. Trade Deficit Last fall the U.S. dollar began to sharply increase in value as strong signs of economic growth convinced currency traders that the Federal Reserve would begin raising interest rates even as other central banks cut theirs. The impact of this shift was very apparent in the first quarter trade numbers of 2015. Imports—particularly from Asia—surged even as exports dropped off. According to initial estimates from the U.S. Bureau of Economic Analysis, the widening trade gap shaved 1.2 percentage points off of growth in the first quarter of the year. “Trade was the single largest drag on the U.S. economy and explains much of the weakness in overall growth at the start of 2015,” said Christopher Thornberg, Founding Partner of Beacon Economics. Interestingly, the nominal trade deficit only grew by 2% over the same period, however, most of that change had to do with the cheaper price of imports relative to exports. Although the source of weakness, trade will also be the driver of changes that will reduce the drag on the economy as 2015 proceeds. The weak first quarter economic numbers have put expectations of an imminent Fed rate hike on the back burner for now, and better growth numbers from Europe suggest the global economy may be shifting to stronger ground. The U.S. dollar has also fallen slightly in recent weeks. Nevertheless, Beacon Economics expects trade to remain a drag on the U.S. economy in the second quarter. The Outlook Beacon Economics’ outlook for California’s merchandise export trade remains guarded. Although the dollar lately has been giving up some of its dramatic gains since last spring, its high valuation remains an obstacle to export growth with most of the state’s trading partners. Moreover, both Mexico and Canada – the state’s two top export destinations – have recently cut their respective economic growth forecasts for 2015, while Japan expects to see its economy expand by less than 1% this year. Meanwhile, China’s economic growth rate is expected to slow to below 7% this year. On a more encouraging note, the European Commission just today upwardly revised its forecast for European Union growth to 1.5% from 1.3%. As Beacon Economics has observed previously, a significant portion of California’s export trade to Mexico and Canada goes to assembly plants where the products are incorporated into goods that are then exported back to the United States. As a result, the state’s merchandise exports to its two leading export markets tends to reflect the economic performance of the U.S. as much, if not more, than the economic performance of its closest neighbors.