Speculation about how weak the U.S. economy really is drove the dollar’s value versus the Japanese yen to a 15-year low this week, a trend that has implications far beyond trading pits and the offices of central bankers.
A weak dollar ostensibly helps U.S. manufacturers by making their products less expensive in overseas markets. Manufacturers can use any help they can get; exports reached a two-year low in June.
But a weak dollar also can hurt demand for imported products here by making them more expensive, which does not bode well for consumer spending. And by eroding the value of dollar-denominated investments, a weaker dollar could lessen demand for U.S. government debt at a time we are dependent on that financing to cover our deficits.
There are numerous ways to report the impact of a weakening dollar in ways that resonate with audiences unwilling or unable to grasp the macroeconomics.
Earnings of many public companies can be heavily influenced by movements in foreign exchange rates, with immediate implications for jobs at companies that may already be struggling. Just how much will become more clear in mid- to late October when the next cycle of earnings reports come out.
Some manufacturers stand to benefit from the combination of currency swings and the new Manufacturing Enhancement Act, signed by President Obama on Wednesday, which will temporarily drop tariffs on imports of raw materials. The National Association of Manufacturers predicts the law could preserve 90,000 U.S. manufacturing jobs. The law is also filled with benefits not directly tied to manufacturing; for example, it waives tariffs on many imported sporting goods.
Local auto dealers can feel the swings, in both directions.
Dealers of Japanese-made models (as opposed to ones produced by Japanese-based manufacturers in the United States) are placed at an almost immediate disadvantage when the yen spikes against the dollar. Their invoice prices go up. Their ability to deal, and still cover their own costs, can become limited. That can be to the advantage of dealers of domestic models – to the extent the jittery consumer is willing to buy cars or that the dealers can obtain enough inventory to take advantage of a rebound in demand.
In Baltimore, home to the largest automobile port in the United States, one need only peek at how many cars are sitting in the import parking areas, refused by dealers who can’t get the credit to purchase them and don’t think they could sell them anyway.
At the height of the recession, the port had to park unwanted import cars at the nearby Baltimore-Washington International Airport because it didn’t have enough space on port property.
Earlier this year, as optimism flowed about improvement in the economy, the huge overflow began to noticeably clear out. If they fill up again, there will be spillover effects for trucking companies, third-party logistics businesses, and others whose livelihoods depend on having merchandise to move inland.
But of course, it’s not just cars that flow through our ports. Ports are virtual proxies in coastal markets for the impact of currency price swings. A photo or video of containers at any port parking lot can be a story unto itself.