ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Wednesday, April 9, 1997 TAG: 9704090050
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: NEW YORK
SOURCE: RICK GLADSTONE ASSOCIATED PRESS
A strong dollar will keep U.S. inflation low and cheaper imports rolling in but can hurt American automakers' overseas sales.
The dollar, the most visible symbol of American economic might, has reached the strongest levels in more than four years and might be putting a floor under the wobbly U.S. stock market.
A potent mix of rising domestic interest rates, economic anemia in Japan and the looming displacement of the German mark by an untested new European currency called the euro has increase global demand for dollars.
Foreigners are using those dollars to buy U.S. stocks, bonds and other assets that are delivering a greater return on their money than investments available in other countries.
The everyday changes wrought by the ups and downs of the dollar's worth abroad can work subtly and slowly, so most Americans might not notice.
But forecasters who follow the dollar's behavior say the its vitality - it hit the highest level against the yen Tuesday since August 1992 - is helping the U.S. economy more than harming it.
A stronger dollar not only attracts foreign capital to this country but represses inflation by making imports cheaper for Americans to buy. Were the dollar to weaken, foreign investors might put their money elsewhere and the currently benign rate of inflation might creep up. That, in turn, could undermine a stock market that's still hurting from a 2-week downturn.
``You can't say this is a bad thing,'' said David DeRosa, managing partner at Quadrangle Investments in Greenwich, Conn. ``It's better for our capital markets and better for the inflation front.''
Nonetheless, the dollar's rebound from postwar lows reached two years ago is worrisome to a range of American companies, particularly exporters like automakers and others who depend partly on sales overseas. While imports are cheaper here, American exports are getting pricier abroad.
Eastman Kodak Co. warned investors in March that its first-quarter results would be weaker than expected, partly due to the rising dollar's impact on the photography giant's overseas sales.
The dollar's ascent also played a role in declining U.S. sales for the Big Three automakers in March. During the same month, European automakers enjoyed a 16 percent sales gain and Asian automakers enjoyed a 4 percent gain.
Ford Motor Co. in particular was hurt by 10 percent decline in March car sales, and the pre-eminence of its best-selling Taurus sedan is threatened by Toyota's Camry. Ford also temporarily idled plants in Georgia and Illinois that build the Taurus because of a backlog of unsold cars.
``There is a growing consensus that the yen is weaker than it should be,'' said Andrew Card, president and chief executive officer of the American Automobile Manufacturers Association and a former transportation secretary.
``We are on the cusp of a crisis in terms of increasing trade friction with Japan,'' he said. ``Clearly the weak yen has encouraged a flood of exports from Japan.''
But others say the dollar's rising value isn't necessarily harmful. While automakers might complain, they are still highly profitable and benefiting from the tame inflation rate that has been caused partly by the dollar's strength.
Moreover, a stronger dollar doesn't necessarily hurt the bottom lines of big multinational companies. Although nearly half the earnings of companies that comprise the Standard & Poor's 500 index are derived from abroad, the earnings of those companies have continued to grow.
Data from First Call Inc., a distributor of corporate earnings projections by securities analysts, show that the current first-quarter earnings estimate for S&P 500 companies is an average 11.8 percent gain from a year ago. Although that's down from the 13.8 percent gain estimated in January, the dollar's appreciation has played only a marginal role in the revision.
``It's not like, uh-oh, the dollar is strong, and I've got to go back to the drawing board,'' said Charles L. Hill, director of research at First Call, based in Boston. ``Most analysts already had factored in that the dollar is stronger than last year.''
LENGTH: Medium: 78 linesby CNB