Weak Dollar Making US a Business Bargain

[Omaha Steve]

http://money.excite.com/jsp/nw/nwdt_rt_top.jsp?cat=TOPBIZ&feed=ap&src=601§ion=news&news_id=ap-d8vlrbu80&date=20080327&alias=/alias/money/cm/nw

Thursday March 27, 10:55 AM EDT

NEW YORK (AP) — Thanks to the weakened dollar, the U.S. has leapfrogged France, Britain and other European countries as a cheaper place to do business.

A new study released Thursday by the auditing and consulting firm KPMG shows that the U.S. moved up on the list of most cost-efficient places around the world. Researchers compared 136 cities in 10 countries in North America, Europe and Asia, but did not include fast-growing China.

Mark MacDonald, the global director of KPMG Competitive Alternatives, said the survey authors found the U.S. to be more cost competitive than they'd ever seen because of the plunging dollar.

In 2006, the U.S. ranked seventh, and lagged behind several other G7 countries. This year, though, only Mexico and Canada were cheaper. The U.S. is now cheaper than Britain, the Netherlands, Italy and France.

"Now the cost of business is considerably higher in these countries due largely to the depreciation of the U.S. dollar," MacDonald said in a statement.

"Currency change was a central theme in this year's study," study co-author Glenn Mair said on a conference call.

FULL story at link.

[Earth Bound Misfit]

1. Weak Dollar Little Help for Manufacturing

Source: Business Week October 4, 2007

Despite the decline in the dollar, U.S. manufacturers are likely to see a decline in their domestic employment over the next year.

You would think that manufacturing employment would be recovering nicely these days. The cheap dollar ought to be stimulating the sales of big exporters like Boeing (BA), Caterpillar (CAT), and DuPont (DD). After all, the dollar's recent declines make American manufactured goods cheaper overseas, and they raise the cost of manufactured imports, encouraging Americans to buy domestically made alternatives.

But the reality isn't as pretty as the textbook picture. In an interview this week, the National Association of Manufacturers' chief economist, David Huether, predicted that the manufacturing sector is going to do worse than it has the past few years in spite of the dollar's fall. Manufacturing employment is just over 14 million. Says Huether: "Probably over the next year, it's going to fall by more than 100,000."

So even though the trade deficit is slowly shrinking, manufacturing is still under pressure. Why are factory jobs disappearing even with American goods on permanent sale worldwide? Here are some of the key reasons:

• Big U.S. manufacturers tend to spread their production around the globe, both to be closer to their customers and to avoid having all their eggs in one currency basket...

• While the export situation has improved, it isn't enough to make up for slumping domestic demand. Home building is in the tank, cutting demand for manufactured goods ranging from lumber and concrete blocks to home furnishings. Consumer spending on the whole is softening, and business investment isn't strong, either. While foreign trade matters, it's still a small factor vs. domestic consumption.

• Although the dollar has fallen a lot against the euro and the Canadian dollar, to name two currencies, the governments of Japan and China are preventing the dollar from falling against the yen and the yuan. That's making it hard for the U.S. to increase exports to those countries, or compete with imports from them.

• Productivity is improving more rapidly in many of America's trading partners. Even taking into account the dollar's fall, the U.S. lost ground last year in manufacturing unit labor costs vs. Japan, Germany, Taiwan, and Sweden, among other countries, according to a Sept. 27 report from the Bureau of Labor Statistics...

• The U.S. manufacturing base has shrunk so much that the U.S. simply lacks the capacity to export its way out of its trade deficit...It would take years of building factories and hiring and training factory workers to rebuild that manufacturing base.

• The U.S. is in the middle of a long-term transition from manufacturing to services. Employment in the sector briefly flattened in 2006 as manufacturing boomed worldwide, but now the underlying trend seems to be reasserting itself. Total employment in the manufacturing sector, including white-collar jobs, is just a tad over 14 million, down from over 17 million at the start of the 2001 recession...

...the dollar's fall is a plus for U.S. manufacturing. But it's no match for all the other forces arrayed against the sector.

Full story: http://www.businessweek.com/bwdaily/dnflash/content/oct2007/db2007103_001453.htm

Edit: Many American "manufacturers" are really nothing more than assemblers of imported components. A domestic golf club company that supposedly manufactures clubs in the U.S. might import the heads from China, the shafts from Indonesia, and the grips from Mexico. The only thing the American company actually does is assemble the pieces. So as the dollar loses value, the costs of importing all of the components will rise, making the finished product more expensive for Americans.