Not what you want to see when your currency is already falling
It takes more money to buy foreign goods when your currency is worth less on the world market, as the dollar currently is today. But a cheaper dollar should also drive more exports, since your currency or products can be purchased with fewer Euros, Yen or what have you.
That's why today's report that the U.S. trade deficit soared far beyond analyst expectations in the last quarter, while the dollar was falling steadily against other currencies, is such a troubling piece of data for the economy. It suggests that deflation, a falling price for everything from labor to finished products, could be a very real aspect of the global economy today, since, clearly, consumers in other countries are not buying U.S. products just because they are cheaper. They're buying elsewhere, where prices are lower.
From the Financial Times, this bit of "good" news:
"Stripping out the effect of higher oil prices, the data are a bit worse than assumed in the first quarter gross domestic product data, so they do point to a small downward revision," said Ian Shephersen, chief US economist at High Frequency Economics in a morning note. "But the headline deficit will drop sharply in April thanks to the drop in energy prices."
True enough, however the U.S. is a net importer of energy all the time, so we're still faced with a much lower demand for our products and services than we should have expected with the dollar falling against other currencies.
Remember, just this weekend, U.S. Treasury Secretary John W. Snow told Sunday talk shows: "Is the dollar now at a level where it can give a significant boost to exports?" Mr. Snow replied: "Well, you know, when the dollar is at a lower level, it helps exports. And I think that exports are getting stronger as a result, yes."
Apparently not.
Posted by Mitch Ratcliffe at May 13, 2003 09:13 AM | TrackBack