Stronger Dollar Hurting US Exporters

The US Dollar continued appreciating over the last several months and most see this as a positive for the American economy. But, a number of prominent US CFOs, recently surveyed by Duke University, have pointed out a down side to this upturn. The increased value of the dollar is actually making it harder for US exporters, and could hamper their investment plans for the next year.

The US Dollar continued appreciating over the last several months and most see this as a positive for the American economy. But, a number of prominent US CFOs, recently surveyed by Duke University, have pointed out a down side to this upturn. The increased value of the dollar is actually making it harder for US exporters, and could hamper their investment plans for the next year.

Duke University’s survey conducted for its quarterly CFO Magazine Global Business Outlook Survey, polled close to 1,000 business executive (primarily CFOs) about their perspective on the US economy for 2015. Of those surveyed, a number pointed to the strengthening Dollar as a mixed blessing that created a considerable risk. While the Dollar may increase domestic buying power, it may simultaneously harm foreign selling.

The logic is straightforward: if the dollar is worth more and has greater buying power, then people in the US will be more capable of buying foreign goods that will feel cheaper. On the other hand, American companies will not be able to pay their employees any less, their costs will not go down (in terms of numbers of dollars spent) to manufacture a product, etc. As a result, foreign buyers will find it harder to purchase American products because they will suddenly feel much more expensive due to the exchange rate.

The marked appreciation of the Dollar began about six months ago. Some have speculated that this may have been the result of a concerted effort by economically competitive companies to harm the US economy. This would have required them to depreciate their own currency (reducing their own populations’ relative buying power) simply to harm US interests. As a result, while such speculation is provocative, it is also unlikely.

At a time when the US economy is experiencing steady and healthy growth, much needed after the recession and resulting deficits that so damaged economic expansion, this shift is unfortunate. As a general rule, US exports have steadily increased over the last several decades, helping to push ahead economic growth by not limiting the consumer base to strictly American buyers. A loss in American export sales could significantly harm overall economic recovery and future growth, not just for exporters, but also for the entire economy.

For that reason, the Federal Reserve is carefully considering whether it should raise interest rates (a move that may stabilize the value of the Dollar). Fed officials believe the rate increase could offset the foreign-exchange increases that have been a restraint on American exports. This would support actual economic growth (i.e., the production and sale of a greater number of products, resulting in the creation of additional jobs, etc.) rather than masking it behind the facade of a more powerful Dollar.

The Duke study also turned up several other interesting facts about CFO opinions on the economy. They included:

* Nearly 70% of US companies believe they will raise wages by 3% in 2015.

* On a scale of 0 to 100, CFOs have rated the economic outlook at the beginning of 2015 at a 65, the highest rating since 2007.

* Only 23% of European CFOs believe the European Central Bank’s easing program will lead to inflation.