The Weaker Dollar has an Upside: Stronger Exports

by: Jonathan Liss

Following is an excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Global Growth, Weaker Dollar Unleash a Wave of U.S. Exports

  • Summary: There are signs that the U.S. trade-deficit is finally starting to narrow. In the first five months of this year, U.S. exports were up an inflation-adjusted 10% from the year earlier period. This rise was led by strong sales of capital goods abroad, items like heavy construction equipment and machine tools, whose exports were up even more sharply at 15%. During the same period, goods imports rose 6% in inflation adjusted terms. The Manufacturers Alliance, an organization that represents U.S. manufacturers, expects U.S. export growth to accelerate to 7.7% this year and 9.4% in 2007, up from 6.9% in 2005. Economists have pinned the growth in exports largely to a delayed impact from the weaker dollar, which has given U.S. producers a competitive edge in pricing. Since 2002, the dollar has lost 14% of its value. Combine this with strong growth in powerhouse economies like Europe and Japan, as well as continued emerging market growth in places like China and India and you get especially strong U.S. export numbers.
  • Comment on related stocks/ETFs: U.S. economists generally agree that among the advantages of a weaker dollar are an increase in exports, as countries on the lower end of the economic spectrum can begin to afford U.S. goods. Seeking Alpha contributor David Andrew Taylor believes that the dollar and U.S. trade deficit have a lot less pull on one another than many believe. For more on this contrarian view, see his piece A Contrarian Take on the Dollar: Why It Will Get Stronger.