The shrinking dollar

In the Alice-through-the-rabbit-hole world of finance and investing, things aren’t always what they seem.

The U.S. dollar touched a one-year low compared to the euro Tuesday – making the European coin worth more than $1.48.

For many here in the states, that’s cause for celebration.

It’s also counter-intuitive. Wouldn’t we want our economy’s currency to always outvalue that of other nations?

Not if we’re sending goods to those other countries, or trying to lure their tourists and business investment here.

Here’s a primer from the Federal Reserve Bank of Chicago.

Even if you don’t cover Disneyworld or Las Vegas, or live in a state that’s trying to woo a foreign factory, you definitely can find some local industry – agriculture, manufacturing, pharmaceuticals, tourism, IT – that exports products or commodities and otherwise ebbs and flows with the fate of the greenback.

On the flip side, consumers planning to travel overseas – or send their children as foreign exchange students – really suffer when the dollar is weak. With the school year just underway, the plight of study-abroad programs would make a great personal finance piece.

Overseas interest in commercial and residential property is a story that’s ripe for the plucking in just about any market.

In 2008, an extremely weak dollar fostered news reports that overseas car makers like Volkswagen AG and BMW to build or expand U.S. factories, and to source more car parts here, to take advantage of the amped-up purchasing power.

Houses, cottages and vacation condos are more attractive to foreign buyers when the dollar is weak – a 2008 report by the National Association of Realtors claimed that 26 percent of its members had served an international client in the previous year.

Search for a Realtor with the NAR’s Certified International Property Specialist in your state or zip code and ask some of them about overseas interest in your region.

When it comes to the markets, our dollar tends to zig when other investments zag, and vice versa. That’s because traders use the U.S. greenback as a safe haven, much as we store cash in a piggy bank. When other investments –stocks, commodities, overseas currencies – start to appear worth the risk, the piggy bank is lightened in favor of those other buys.
Here’s a Radio Free Europe article that puts demand for the dollar in perspective.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.

Natural gas rates plunge

Record low overnight temps forced me to dial up the thermostat this morning, bringing back unwelcome memories of last year’s heating bills, which rivaled my monthly mortgage payment.

This year, though, it looks as though we’re in for a break.

Natural gas commodity prices are down 60 percent since the start of the 2009 – about a seven- or eight-year low, according to Kobi Platt, an analyst with the Energy Information Administration at the U.S. Department of Energy in Washington, D.C.

“This is a tremendous swing from last year,” said Platt. “And generally speaking, the lower prices we have seen this year will be passed on to consumers.”

That’ll be welcome news to your readers, so you might want to consider a fall heating outlook soon.

Run it as a personal finance package, contrasting this year’s outlook to last year’s astronomical heating rates. (Keep in mind that the entire natural gas price drop won’t be reflected on residential bills; local utilities have been buying fuel contracts all year at a variety of prices and we don’t yet know what weather or an economic rebound will do to demand.)

You also could stick to a straight business angle by looking at the commercial implications of lower natural gas prices. And they’re more numerous than you might think.

Only about a third of the 20 trillion or so cubic feet of natural gas consumed nationwide each year is used for residential and commercial heath. Another third is used in industrial processes – both as an energy source and as an ingredient in products ranging from fertilizers to plastics. The drop in demand by manufacturers, who’ve reined in production throughout the recession, has a lot to do with the current sky-high inventory levels and low prices.

The final third is used to generate electric power – and with natural gas prices dropping so precipitously, your local utilities might be reducing their reliance on coal even further. That’s another angle to check on, including the implications for electricity rates.

The EIA site’s natural gas portal is a wealth of resources, particularly the narrative monthly short-term energy outlook (sign up for the e-mail feed) and the weekly natural gas storage update – that’s a market mover and a key indicator of future price fluctuations. Don’t worry if you don’t understand this vast and complicated industry – EIA analysts like Platt are available by phone to walk you through the data.

Another angle is retail choice. Some states have allowed competitors to challenge monopoly utilities; here’s an EIA map that shows what’s going on in your area. If you have competitive suppliers, check with consumers to see how that’s working.

Be sure to check with your local utilities themselves and state public service regulators about rates and forecasts, as well as local residential and commercial users.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.

The ABC's of the GDP

The granddaddy of all economic statistics will be released at 8:30 a.m. tomorrow, and the numbers will show whether or not the U.S. economy has started to claw out of its most dismal slump since the Great Depression.

Gross Domestic Product, in all its intricacies and implications, isn’t something you can assimilate overnight. But since it’s pretty much all of the statistics we’ve already discussed – and more – wrapped into one, it behooves any business reporter to bone up a bit.

Considered the key measure of any country’s economic health, the GDP basically is the sum of all goods and services produced here. It’s considered a lagging indicator, meaning it’s a review of how things were in the previous quarter, from personal income to goods exported overseas.

If quarterly GDP growth (or contraction) deviates significantly from predictions, markets globally will gyrate. According to Reuters, analysts expect the Q2 advance report to show further contraction in the U.S. economy -- the first time since 1947 that records show four consecutive negative quarters – but the pace of contraction is expected to ease.
Start at the Commerce Department’s Bureau of Economic Analysis, which produces the GDP reports.

Click on the GDP channel and you’ll find an e-mail sign-up, educational information about methodology, and other helpful info. Note that the GDP figures for any given quarter are released three times – the advance, preliminary and final reports. The advance is our first peek and will be refined twice more until we get the final verdict on the second quarter. If you’ve never done so before, you might want to read the releases for previous quarters to familiarize yourself with the format.

The spot news in the GDP story will be whether or not it signals an end to the recession. In that regard, you can plan on doing a local economy story highlighting the hardest-hit sectors in your area. If your readers have lost manufacturing jobs or tourism revenue or orders for new airplanes, talk to regional analysts, academics and economists about how long an upswing might take to revive or replace those losses at the local level – and fold in macro view using national statistics.

GDP results tend to move markets; if they buoy or dampen the mini-rally underway, keep an eye Friday on stocks of local interest, especially large employers whose shares are likely lurking in your readers’ retirement accounts.

Also, be sure to root around on the BEA site; you’ll find GDP stats for states and metro areas as well as the U.S.-wide figure. On the downside, the data is a couple of years old, but the interactive maps and tables may provide a springboard for stories as well as charts and graphics.

As an aside, note that the BEA also tracks personal income and spending and issues monthly reports. The June numbers will be released August 4 so you might want to give that channel a glance too, while you’re on the site.

And keep in mind, as Mark Twain supposedly quoted, “there are three kinds of lies: Lies, damned lies and statistics.” Not everyone agrees that the GDP figure is a true reflection of our economy. I doubt the measure is going to be scrapped any time soon, but critiques help you put it in perspective; here’s a link to a readable Associated Press piece from last year explaining some analysts’ qualms.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.