Stumbling world economy trips up California exports

SACRAMENTO -- The world's economic problems have dropped anchor in California ports.

After nearly three years of steady growth, the state's exports dipped slightly in July compared with the same month in 2011, according to numbers released Tuesday. Trade has been a bright spot in the state's economy, but Europe's ongoing debt crisis and slowing growth in Mexico and China are cutting into the global appetite for products manufactured in California.

Not even demand from California's No. 1 export market, Mexico — which helped state businesses post surprisingly strong results in June — was enough to keep the momentum going.

"With much of Europe in recession and with slowing economic growth in even such relatively healthy foreign markets as China and Mexico, July's numbers come as no surprise," said Jock O'Connell, trade adviser for Beacon Economics, a consulting firm with offices in the Bay Area and Los Angeles.

Beacon compiles California's exports by analyzing trade figures released by the U.S. Department of Commerce. It said California companies shipped goods valued at $13.09 billion in July, down from $13.15 billion in July 2011.

The state's largest export category, industrial machinery, which includes computers, eked out a 1.5 percent gain from last year. Sales of optical and surgical equipment, another large category, also rose, as did shipments of fruit, nuts and wine — much of it grown and processed in the Central Valley.

But they were offset by declines in a wide variety of items, including shipments of pulp wood products, metals, minerals and recording equipment. Lower milk prices reduced the value of dairy products shipped from the state.

The state had posted year-over-year export gains for 32 consecutive months.

Beacon said export segments that had been seeing double-digit, year-over-year growth in the post-recession period were flat or declined in July.

Overall, exports of manufactured goods edged up 0.8 percent to $8.58 billion, compared with the year-ago period. Nonmanufactured exports, which are mainly raw materials and farm products, fell by 5.2 percent to $1.45 billion.

"Serial policy fumbling in Europe lies at the root of the current worldwide march toward malaise," O'Connell said. "The impact is now being manifested throughout much of the world as an ebbing tide of demand for goods and services is lowering all boats."

Beacon actually called an end to the export growth streak in April, when the value of the state's exports first dipped when adjusted for inflation. On an inflation-adjusted basis, July's year-over-year drop in exports was more significant: 2.3 percent.

'Cautiously upbeat'

Still, Beacon said Tuesday there are "reasons to remain cautiously upbeat" about the state's potential for growth in international trade.

Beacon cited 5 percent year-over-year growth in the state's three-month average of exports, noting "this is indeed slower than the double-digit growth rates experienced in 2011, but shows that July's showing is not a cause for panic." California exporters continue to exceed, by 3.9 percent, the inflation-adjusted pace set in 2008, the peak pre-recession year for export trade.

Raymond Flores, a Los Angeles-based consultant whose clients include multiple farming and technology companies that do business overseas, said the July numbers "need to be taken with a grain of salt."

He added: "All good things come to an end, and with Europe's mess and slowdowns in other overseas markets, the streak was going to end sooner or later. … In total, (July) was a pretty good month — especially against what was going on here during the recession."

Falling demand overseas isn't the only factor making California's export total contract. Daniel Sumner, director of the University of California Agricultural Issues Center at UC Davis, said a collapse in dairy prices — California is the nation's dairy leader — has shrunk the value of the state's formerly $1 billion-a-year dairy export business.