Dollar's Value Gives A Boost to Exports
THERE'S certainly one bright spot in the current sluggish economic setting in the United States - exports.Despite a drop in exports in August, that's the view of a number of analysts here, including George Iwanicki of Kidder, Peabody & Co., and Dr. Robert Barbera of Shearson Lehman Brothers Inc. Dr. Barbera, for example, says that the current environment of slow economic growth and relatively low inflation means that the US will retain a very "competitive position" on merchandise trade. US exports, he concludes, will remain "firm." Similarly, Mr. Iwanicki's argument has more to do with favorable currency valuations than just the quality of US products, although many US products - such as in aerospace, chemicals, and computers - are sought for their excellence. The overriding advantage for US exports continues to be the value of the dollar vis-a-vis other currencies. Although the dollar rose in value against other currencies during the first half of 1991, the dollar, "on an export-weighted value," argues Iwanicki, remains low relative to its levels in the mid-1980s. Export-weighted dollar values are "dollar exchange rates adjusted for relative inflation differences and weighted by export shares for each industry." Thus, Iwanicki concludes that despite the 4.4 percent rise of the dollar since February, the export-weighted value of the dollar was only 0.2 percent higher in August than it was a year ago. Recent dollar rises, in fact, have been uneven. While the dollar recently rose against the currencies of Germany and other European nations, the dollar gains were "modest or nonexistent" against such major US trading partners as Canada, Japan, and Mexico. The distinction is crucial to why US exports are doing well, Iwanicki says. Canada is the major trading partner for the US, accounting for more than 21 percent of all US exports (in dollar terms), Japan for over 12 percent, Mexico for 7 percent, and Continental Europe, 19 percent. Still, there is some concern about the impact of slower overseas growth on the US manufacturing sector. According to a new study by IDS Advisory Group Inc. in Minneapolis, the "slowing in overseas growth is likely to lead to a decline in the rate of gain in US exports." A slowdown in Germany, for example, would be significant for US manufacturers. The reason? High interest rates in Germany, according to Shearson Lehman, could act as a drag on the Continent as a whole, offsetting any pickup in growth on the part of individual countries there. In turn, a slowdown on the Continent could tug growth downward in Britain, which absorbs about 6 percent of US exports. Still, the overall consensus is that, for now at least, US exports are looking good. The manufacturing sector should benefit from this trend, says Iwanicki. Industries expected to do well in the months ahead, he adds, include capital goods and some industrial supplies and materials. Taken together, these account for over 60 percent of US merchandise exports. Capital goods industries are particularly important, comprising almost 40 percent of US merchandise exports during 1990. Two major US manufacturing sectors find themselves increasingly dependent on exports, experts note - automobiles and aircraft. In the case of autos, Detroit is reeling from the slump in US consumer spending. Last week General Motors, Ford, and Chrysler noted that sales of cars and light trucks were off sharply in the first 10 days of October, a critical period for the carmakers, since October is the start of the new model year. Whether Detroit can count on vigorous sales abroad - given a slowing economy in Europe - is questionable. The same pattern holds for makers of commercial aircraft. Aerospace companies face declining defense spending, plus a recession-related travel slowdown in the US market. So it is important for the manufacturers to maintain or expand exports. But, with many of the major overseas carriers based in Europe, this may prove difficult.