Rising Dollar Could Again Plague U.S. Manufacturing

A stronger U.S. dollar helped curb growth in the nation's manufacturing sector in recent years, and analysts suggested that a recent spike in its value could make the pattern worse.

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A stronger U.S. dollar helped curb growth in the nation's manufacturing sector in recent years, and analysts suggested that a recent spike in its value could make the pattern worse.

The value of the dollar jumped sharply compared to the Euro over the past two months, and The Wall Street Journal Dollar Index reflected a 14-year high in the dollar's value compared to 16 other currencies last week, the paper reported.

The dollar increased in the aftermath of the election and the Federal Reserve's decision to boost interest rates. A strong dollar reflects confidence in the nation's economy and could boost consumer spending by making imports cheaper, but rising currency values also present challenges for manufacturers.

Domestic manufacturers must contend with goods that are more expensive in overseas markets, especially compared to foreign-made competitors. That pattern tends to increase the nation's trade deficits and slow manufacturing growth.

The Journal reported that some companies are already cutting their expectations amid concerns about competition from companies in Europe and Japan.

In addition, manufacturing employment declined by more than 50,000 jobs between the beginning of 2015 and November 2016, and a strong dollar would likely curb domestic expansion plans — especially since the Mexican peso and Chinese yuan slid compared to the dollar.

Business leaders that spoke to the Journal suggested that tax cuts, reduced regulations, increased infrastructure spending and stronger domestic demand under the next administration could mitigate those effects.

Macroeconomic Advisers economist Ben Herzon, however, told the paper that although consumers would initially benefit from a stronger currency, subsequent manufacturing complications would erode those advantages.

Herzon said that if the dollar strengthens by an additional 10 percent, manufacturing production would be 3.6 percentage points lower and overall economic growth would be 1.8 percentage points lower that the projections at its current value.

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