Report: Stronger Dollar Could Hurt US Manufacturing Output

In the wake of the U.S. presidential election and the Feds decision to raise interest rates, the dollar reached a 14-year high.

(AP Photo)
(AP Photo)

Manufacturers under pressure from a stronger dollar in recent years could be hurt again if a recent spike in its value continues.

In the wake of the U.S. presidential election and the Federal Reserve's decision to raise interest rates, the dollar jumped sharply compared to the Euro and an index compiled by The Wall Street Journal reached a 14-year high.

In addition, an analyst told the paper that a further 10 percent increase in the dollar's value could curb the nation's manufacturing production and overall economic growth.

Macroeconomic Advisers economist Ben Herzon said that trend would translate to a 3.6 percentage point decrease in output and a 1.8 percentage point drop in growth compared to current projections.

(AP Photo)(AP Photo)

A strong dollar reflects confidence in the nation's economy and could boost consumer spending by making imports cheaper, but rising currency values also make domestic goods more expensive in foreign markets.

That tends to increase the nation's trade deficit and slow manufacturing growth.

Herzon said that although consumers would initially benefit from a stronger currency, subsequent manufacturing complications would erode those advantages.

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

In addition, 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, however, suggested that tax cuts, reduced regulations, increased infrastructure spending and stronger domestic demand under the next administration could mitigate those effects.

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