Dollar's decline boosts opportunity for some companies - East Valley Tribune: Business

Dollar's decline boosts opportunity for some companies

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Posted: Sunday, December 2, 2007 4:47 am | Updated: 5:48 pm, Fri Oct 7, 2011.

For Bob Simpson, president and co-owner of Silverado Cable in Mesa, the decline of the U.S. dollar in foreign currency markets has been of more than just theoretical interest. It has increased his business.

The company, which makes wire harnesses for military and commercial aircraft, has picked up several new customers at recent trade shows in Great Britain and the rest of Europe , and more potential customers are waiting in the wings, he said.

The foreign business, which accounts for about 10 percent of Silverado’s sales — up from nothing a few years ago — has helped the company expand its work force from about 60 employees two years ago to 100 today, he said.

Simpson said the decline in the dollar has been the biggest reason for the increased overseas sales because it has made his American products cheaper on the other side of the Atlantic.

“What we’ve heard is the customers want to come to the U.S. (suppliers) because of the dollar,” Simpson said. “They are very pleased with the savings to them.”

While the decline of the dollar to record lows against some foreign currencies has damaged the prestige of the once-mighty American money, it also has opened opportunities for businesses in the United States that export products to those countries. That includes not just Europe and the United Kingdom but also Canada, whose dollar has risen to approximate parity with the U.S. greenback.

The currency situation creates both winners and losers. Losers are American tourists and business people who have to pay more for trips to Europe. But it’s cheaper for Europeans to visit the United States, which benefits Scottsdale resorts and other businesses that cater to foreign travelers.

American businesses that import products from Europe have been hurt because they are more expensive, but American businesses like Silverado that export to Europe are benefiting because their products are cheaper.

Not surprisingly, U.S. exports have been rising even as the domestic economy shows signs of losing steam. Tracy Clark, an economist with the W.P. Carey School of Business at Arizona State University, calculates that virtually all of the increase in the U.S. gross domestic product reported in the third quarter can be attributed to stronger exports.

The weaker dollar also has played a role in the run-up in the price of oil and gasoline, but Clark said the buck is not entirely to blame. Speculators and market fears have been bigger factors, he said, adding that oil has gone up in price in virtually all currencies, including the euro.

“It (the decline of the dollar) has been an impact, but it’s not as big as everyone tries to make it out to be,” he said.

But the dollar drop has created other disruptions. For example, Silverado’s Simpson complains that it costs “an arm and a leg” to go to Europe to visit the customers there who are increasing his business. And Mary Rittman, director of travel industry marketing for the Arizona Office of Tourism, said costs have gone up so much that the agency may have to curtail marketing activities in Britain and Europe right at the time when they might do the most good.

“Hopefully we will not close any offices, but we may be scaling back,” she said. “We may go to three trade shows instead of four. We may do sales missions in fewer cities.”

Another surprising impact — but in a positive way — has been in the real estate market, said Elliott Pollack, a Scottsdale economist.

“The second-home market will benefit to the extent that Canadians and Europeans see this as a cheap housing market,” he said. “American housing is a third cheaper than it was. That is an attractive market that wasn’t there before.”

Las Vegas, where Asians are major buyers of condos and other real estate, has benefited the most, he said.

Another impact has been the weaker dollar has enhanced the ability of foreign companies to buy American companies, ASU’s Clark said. That could have a local impact, he said.

“There has been some talk that as the dollar declined, companies like Freeport McMoRan (formerly Phelps Dodge) become more attractive takeover targets,” he said.

But he added that might not have a negative impact on the local company because such a merger wouldn’t change the economics of copper mining. High prices and strong world demand would keep activity humming.

So far, the damage and the benefits of the weak dollar seem to balance each other out, but that could change if the greenback continues to decelerate, Clark said.

“The real risk is that European and other economies might weaken,” he said. “That would weaken us.”

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