A few weeks ago on the NARN First Team, John and I were discussing the falling dollar and wondering whether it was a good or bad sign for the economy. A front page article in today's Wall Street Journal explains that--like many other economic questions--the answer in this case is it depends (sub req):
Yet currency rates are so intertwined with other crosscurrents in the economy that the impact varies from one individual or company to another, even within the same business. Someone who works for a company that relies heavily on foreign trade or a hotel catering to European visitors might get a plump raise or avoid a layoff because of the weaker greenback. An employee of a hotel getting less foreign business -- or one whose company has lots of foreign hotels catering to American tourists -- may fare worse.
If the dollar falls too far and too fast, it could spur a run-up in interest rates and shake the stock market -- which would be bad for the economy. A rapidly falling dollar would raise the price of imports, stoking inflation, and in an extreme case could prompt foreign investors to dump U.S. bonds, pushing their yields higher.
But as long as the dollar's decline is gradual, most economists see it as a modest plus overall. Joshua Feinman, chief economist at Deutsche Asset Management, wrote in a recent note to investors that the export upswing is one of the factors "poised to help cushion the impact of the housing correction." Real exports have grown faster than real imports for nearly two years, notes Mr. Feinman, and he expects this trend to continue. U.S. exports rose 2.7% to a record $137.68 billion in July, according to the Commerce Department. Mr. Feinman estimates stronger exports have contributed a half percentage point of added growth to gross domestic product since 2005.
Slower please.
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