Lower Prices, Gift-Wrapped
Asia's financial crisis brings cheaper goods and falling mortgage rates
The bust in Asian financial markets should become a boon for American consumers, who can expect cheaper goods from clothing to computers and cars, furniture to gasoline - even home mortgages - in the coming months.
Sharp currency devaluations across Asia mean that the US dollar buys more. "Imports will be 20 to 40 percent cheaper," says economist Meriman Behravesh of Standard & Poor's DRI in Lexington, Mass.
And "there will be more of them," he adds, "because these countries are going to [try to] export their way out of the crisis," selling goods overseas to raise money.
The competition should pull down prices on many goods made in the US and elsewhere.
But not all of the savings will pass through to consumers though, says John Anton, a DRI analyst in Washington.
"Overall, it's going to put downward pressure on prices in the US or at least mitigate any upward pressure" caused by a tight labor market and pressure on employers to raise wages, says Mr. Behravesh.
He predicts that recessions in Japan, Korea, and Southeast Asia will keep prices down through 1998.
"Consumers are going to have a good year," says Stan Poznick, an American businessman in St. Louis who imports handbags from Hong Kong. "Everything made in the Orient is going to get cheaper."
And those cheap prices should reduce inflationary pressures in the US, Behravesh says, and, in turn keep interest rates low - making for cheaper loans for homes and cars.
"For consumers, this is good news. For [US] producers, it's not," Behravesh says.
Poznick agrees but notes that "while profit margins will be slimmer, they can make their dollars buy more, so in that sense it's good for them, too."
He cites Dell, which makes computers in Texas but imports 70 percent of its components from Asia. That should let Dell cut prices.
To compete with cheaper Japanese cars, Ford and Chrysler have announced greater rebates.
Poznick's handbags, however, will likely not get cheaper. Since he buys the leather in Brazil and sends it to Asia for assembly, his materials cost won't fall much.
In general, "we haven't seen products work through the pipeline with the new prices yet," Poznick adds.
But interest rates have already moved lower. Ever since the Asian crisis came to a head in late October, rates on long-term Treasury bonds, the bellwether for both inflation and mortgage rates, have been falling.
They've moved from about 6.2 percent to 5.9 percent last Friday, in part because so much money has shifted out of unstable Asia and into the bonds, considered the most stable investment in the world.
"There's no doubt mortgage money is getting better," says Eric Tyson, a financial counselor in San Francisco and author of "Personal Finance for Dummies."
"It's not out of the realm of possibility we could see 6.5 percent" on 30-year fixed-rate mortgages, Behravesh says, compared with a current national average of 7.07 percent.
Mr. Tyson suggests refinancing your mortgage, especially those with adjustable rates. Switching to a fixed rate could save money now and eliminate the risk of rising rates.
If the up-front costs of refinancing seem steep, note that you can sometimes shift those fees into your interest rate or the principal amount of your loan.
If you do reap a windfall - whether from a refinancing or from bargains at Wal-Mart - don't view the excess cash as more spending money, Tyson recommends. Put the bonus into your retirement savings.
That's one area where Americans should take a lesson from Asia, he says, and learn to save more.
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