Does an increase in U.S. demand for foreign imports while the dollar is weak against foreign currencies signal a bottom to the recession or is it just "shoptimism"?
While economists differ on the effect of foreign currency exchange rates on trade, among many a rational consumer market would be discouraged to purchase imported goods when the price for those goods go up due to the increase in value of the foreign currency. Well, maybe the U.S. market isn't acting rationally.
The Wall Street Journal’s Mark Gongloff notes, that the U.S. deficit with China rose 33% between 2005 and 2008, while the dollar fell 18% against the yuen. In November 2009, the U.S. Commerce Department reported that the U.S. trade deficit grew 18 percent to $36.5 billion, a $5.7 billion increase from January 2009 – the biggest surge in 16 years even in light of a weaker dollar.
Lee Eisenberg, author of Shoptimism: Why the American Consumer Will Keep on Buying No Matter What, would likely argue that American consumers are imbued with a high level of what he calls “shoptimism.”
Delivered with the level of wit expected of a former editor-in-chief of Esquire magazine, Eisenberg offers a treasure trove of insight and research on assessing American buying behavior that sounds nothing like economist’s rational market exploration of the consumer mind.
“Longer term, there’s no question the weak dollar is a big plus for U.S. export growth,” said Nigel Gault, chief U.S. economist at IHS Global Insight. While U.S. manufacturers have seen some gain from a weaker dollar, it has been offset by a rebound in U.S. demand for foreign goods, which Gault states is a sign of economic recovery from the downturn.
“Sometimes what looks bad on the surface is actually quite good,” said Sal Guatieri, senior economist at BMO Capital Markets. “I think that’s the case this time around.”
References:
U.S. Trade and Foreign Currency Exchange Rates
From February 2002 to May 2006, there was an 18% depreciation of the U.S. dollar against foreign currencies that helped boost U.S. agricultural exports, reports Mathew Shane and William Liefert in the article "Weaker Dollar Strengthens U.S. Agriculture," Angus Journal, March 2007. While U.S. exports have increased due to the weaker U.S. dollar, U.S. import consumption has also increased. This interplay keeps the U.S. trade deficit gap from shrinking.The Wall Street Journal’s Mark Gongloff notes, that the U.S. deficit with China rose 33% between 2005 and 2008, while the dollar fell 18% against the yuen. In November 2009, the U.S. Commerce Department reported that the U.S. trade deficit grew 18 percent to $36.5 billion, a $5.7 billion increase from January 2009 – the biggest surge in 16 years even in light of a weaker dollar.
Consumer Market Rationism vs. "Shoptimism"
The market doesn’t always seem to act in accords to rational economic assumptions. There are complex factors in play.Lee Eisenberg, author of Shoptimism: Why the American Consumer Will Keep on Buying No Matter What, would likely argue that American consumers are imbued with a high level of what he calls “shoptimism.”
Delivered with the level of wit expected of a former editor-in-chief of Esquire magazine, Eisenberg offers a treasure trove of insight and research on assessing American buying behavior that sounds nothing like economist’s rational market exploration of the consumer mind.
The Bottom of the Economic Recession?
In any case, maybe the increase in the U.S. trade deficit is a good sign that Americans are looking up from the bottom of the recession.“Longer term, there’s no question the weak dollar is a big plus for U.S. export growth,” said Nigel Gault, chief U.S. economist at IHS Global Insight. While U.S. manufacturers have seen some gain from a weaker dollar, it has been offset by a rebound in U.S. demand for foreign goods, which Gault states is a sign of economic recovery from the downturn.
“Sometimes what looks bad on the surface is actually quite good,” said Sal Guatieri, senior economist at BMO Capital Markets. “I think that’s the case this time around.”
References:
- "The Case for a Weak U.S. Dollar Isn't Strong," by Mark Gongloff, Wall Street Journal, (Nov. 13, 2009)
- “Weak dollar no quick fix for narrowing trade gap,” by Christopher S. Rugaber and Martin Crutsinger, Associated Press (Nov. 13, 2009).
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