Friday, March 13, 2015

Utah: The Golden Child of U.S. Exports

By: Matt Schroeder

The Commerce Department recently reported that the United States trade deficit fell 8.3 percent to $41.8 billion in January 2015. A $5.6 billion drop in exports was outpaced by a $9.4 billion drop in imports, resulting in a narrowing of the gap between what we spend abroad versus what we earn from abroad. U.S. exports have been hampered by the strength of the dollar, which makes U.S. products relatively more expensive. Additionally, imports have fallen sharply driven by the increased domestic supply of oil from fracking.

Since the 1970s, the U.S. has been a net importer, which is a drag on gross domestic product (GDP) and many argue is not a sustainable practice in the long term. Utah, on the other hand, has been consistently helping to offset the national trade deficit by contributing — on average — about $5 billion in trade surplus each year over the last five years. Utah contributed more to improving the trade balance in the three years leading up to 2014 than did any other state except Washington. This is relatively impressive given the fact that Utah ranks 33rd in population and 32nd in state GDP.

Utah exports a wide variety of goods, including microchips, food products, medical equipment, aircraft parts and auto safety components. But by far Utah’s largest export is gold — more than any other state — accounting for 35 percent of the total U.S. gold exports in 2012. Total Utah exports in 2012 amounted to $19.3 billion, with $11.8 billion of that being gold (more than 60 percent), which was primarily shipped to the United Kingdom and Hong Kong. The price of gold in 2012 was around $1,700 per troy ounce, which means Utah exported around 6 million troy ounces (more than 200 tons) of gold that year.

However, gold exports have dropped off dramatically in the past two years to just $3.7 billion in 2014, resulting in a dramatic downturn in Utah’s total exports. This is primarily due to the falling price of gold, which has tumbled over the last couple of years to around $1,200 per troy ounce. In addition to the lower valuation making exports appear lower, falling prices also tighten profit margins and may restrict production.

Gold exports, however, don’t really tell us much about the health of Utah’s international trade. The majority of Utah’s gold exports are not even mined here. Gold ore is brought in from other states (most notably Nevada) and purified in Utah for export. This means the gold is mostly just passing through and adds relatively little to Utah’s overall economy. Of the 1.35 million people employed in Utah, only about 1,500 are in the nonferrous metal refining industry, which includes the refining of copper, silver and other metals. Utah jobs associated with gold refining specifically are few.

     Figure 1.

Figure 1 shows this clearly. After removing primary metals exports (which is chiefly gold), the steep decline in Utah’s exports from 2012-2014 is eliminated. In fact, the rest of Utah’s exports have been growing consistently at an average rate of almost 11 percent per year since the end of the recession. And despite the big drop in gold exports, Utah’s contribution to the trade balance is still positive even after excluding trade in gold as demonstrated in Figure 2.

     Figure 2.

Table 1 illustrates the types of products, other than gold, that Utah is actively trading internationally. Top exports include food preparations, civilian aircraft and airbags, with electronic circuits topping the list as Utah’s largest non-gold export. Large aircraft top the list for imports; but, silver, airbags, athletic equipment and cattle are all significant imports as well.

     Table 1.

Utah’s international trade economy is actively growing and consistently contributes positively to our nation’s trade balance. Just remember, when you’re looking at trade data for Utah, it might be a good idea to look past the gold.

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