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Dollar holler

27 January 2016 By Robert Cyran

U.S. multinationals are off-key singing the strong-dollar blues. Apple, DuPont, Johnson & Johnson and Procter & Gamble blame the greenback’s rising value for lowering sales last quarter. They have a point, but a robust currency helps consumers, importers, service providers, real-estate sellers and others. That’s reason enough for Americans to keep whistling while they work.

All four of those companies depend on overseas customers for a big chunk of their sales. More than 60 percent of Apple’s revenue, for example, comes from abroad. They’re insulated somewhat by operating in multiple countries, but when the value of foreign currencies sinks against the dollar, so does the profit – in dollar terms – from each item sold.

Firms are even more at risk if their costs are calculated in greenbacks, but they compete against producers outside the United States. With a rising dollar, California tomato growers will, for example, have a tough time matching the prices of Canadian farmers in New York or Ottawa supermarkets.

While a few multinationals complain, however, other businesses can sing a happier tune. About two-thirds of the U.S. economy is in sectors that face little or no overseas competition. Think everything from healthcare to hair care.

When the dollar rises, the price of imported goods generally falls, giving consumers more bang for the buck. Retailers that purchase goods from abroad will pay less to stock their shelves and, presumably, pass on some of the savings to customers. That means more money to spend on everything from real estate to restaurants. It’s probably no coincidence that, last year, U.S. home prices increased 5.3 percent, according to the S&P/Case-Shiller index, and the number of new houses sold rose 14.5 percent to the highest level since 2007, according to Census Bureau figures.

As technology companies and other firms with major overseas operations report their quarterly results, investors may hear more about the strong dollar – and its role in less-than-stellar earnings. That could still leave the rest of the American economy with plenty to crow about.

 

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