Falling dollar helps, hurts

Trade: The falling dollar has been a boon for local companies exporting to Europe but a curse for firms buying goods valued in the euro.

March 04, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

Nearly three years ago, Baltimore architect Roy H. Higgs worried that a project to design a large office and shopping development in Portugal might barely break even because the U.S. dollar was so strong.

But since then, the dollar has plunged and Higgs' return on the $400,000 project has been more than 30 percent. He has even made money on plane flights and other expenses reimbursed by the client in pricey euros.

"It is phenomenal. It has made us much more affordable, particularly in Europe," said Higgs, who is chief executive and a managing partner of Development Design Group Inc. in Baltimore.

Over a two-year span the dollar slid nearly 13 percent against a basket of major world currencies, though its value has fluctuated. It fell even further against the euro, down a sharp 22 percent over that time. It now takes about $1.22 to buy a euro, compared with 87 cents two years ago.

The falling dollar has opened overseas markets for companies in Maryland and across the nation - making their products and services less expensive. In turn, these firms have been able to take in more revenue and reap bigger profits and hire more U.S. workers.

"It is all heading in the right direction - good for the economy," said William Dunkelberg, chief economist for the National Federation of Independent Business.

While the low dollar has given the U.S. economy a boost, it has come at a cost.

Michael F. Pastore, president of Pastore's Inc., a Baltimore food distributor, said the dollar is digging into his profits. In the past 10 months, prices for imported olive oil, artichokes, roasted peppers and pasta have risen 25 percent to 30 percent, he said.

"I have taken a hit a little bit," said Pastore, who distributes food under his own Sun of Italy label. "This is a time I can't make the margins I would like to make."

Pastore employs 35 people and is watching overtime. In recent months he has raised prices on imported artichokes from 10 cents to 20 cents a six-ounce jar, depending on the dealer's markup. Pasta sales are holding up, but Pastore can't offer as many promotions as he did before.

Angered Europeans

The dollar's decline also has angered European officials, who complain bitterly that they are bearing the brunt of the Bush administration's willingness to let the dollar fall. While U.S. manufacturers are seeing stronger demand for their products, Europe's manufacturers are struggling to sell higher-priced goods here.

Because of the positive economic ripples, the Bush administration has been content to let the dollar fall despite widespread international criticism. The hope is that a cheaper dollar will create jobs, an urgent political priority for Bush.

"There is an election in November, the administration knows that one of the places that it is vulnerable is on jobs," said Nigel Gault, research director of U.S. macroeconomics at Global Insight Inc., an economic consulting firm in Lexington, Mass.

Currency traders, manufacturers, importers and investors keep a close eye on the dollar because it's the measure of value for most important international transactions. Oil, for example, is traded in dollars.

"The medium of exchange of the world is the U.S. dollar," said James Thorne, senior portfolio manager at M&T Bank in Baltimore and a former economics professor. "Everywhere you go, U.S. dollars are accepted."

Thanks to the cheaper dollar, U.S. companies exported $1 trillion in goods last year, up 4.6 percent from 2002 and the most in about four years. Exports of consumer goods reached a high of $89.9 billion last year, a record, and industrial supplies also set a record last year, totaling $172.9 billion.

As the dollar has dropped, profits from exports for spice maker McCormick & Co., and Black & Decker Corp., the global toolmaker, received a boost last year.

The low dollar "is a big impact," said Frank J. Bowman Jr., vice president of marketing and support operations international at Baltimore Aircoil Co. Inc., a worldwide manufacturer of industrial air-conditioning and refrigeration systems. "It makes us more competitive on the export side of the business. Now, we can ship out of the United States and still be more competitive than any European-supplied products."

Bowman said Baltimore Aircoil's sales and income have grown at a double-digit pace in the past four months.

The cheaper dollar has opened up more projects overseas for RTKL Associates Inc., a global architectural design company in Baltimore.

"Overall, it is a good thing for us," said David Hudson, RTKL's president. "Our offices in the U.S. are able to compete in Europe and Asia. It is assisting us in increasing our revenue."

Higgs, of Development Design, said he plans to expand his staff of 65 by 15 percent to 20 percent this year because business is so strong. He recently hired two architects and has interviewed three others.

"We have never started a year with so much overseas business coming through the door," Higgs said.

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