■ Despite a strong dollar and the slowdown in global demand, US exports are resilient.
■ The manufacturing sector benefits from lower prices for commodities and imported intermediate goods as well as from the stability of unit labour costs.
■ To limit market share losses, lower production costs are being passed on to sales prices, mainly for export goods.
■ Will US domestic demand hold up better than global demand? This seems to be the message of the October ISM surveys.
Since summer 2014, the dollar has picked up robustly. In effective terms (i.e. the weighted sum of a set of bilateral exchange rates)1, the greenback has gained 17% against a broad basket of currencies, and nearly 20% if we look solely at the main international currencies2. This upward movement can be attributed to several factors, two of which predominate: the drop off in commodity prices (which strains the currencies of commodity exporting countries like Australia and Canada) and interest rate spreads arising from contrasting monetary policy leanings (which has had a strong impact on the euro and yen).
For an economy whose currency is appreciating, it is generally feared that the external imbalances will deteriorate. All else being equal, exports become more expensive and imports cheaper. Hit by lower competitiveness in both its export and domestic markets, national output tends to falter. The Fed is worried about these potential effects. The FOMC press release for March pointed out the weakness of exports (“export growth has weakened”) while the next month it highlighted the effects of falling import prices on inflation (“Inflation continued to run below the Committee's longer-run objective, partly reflecting […] decreasing prices of non-energy imports”).
The US economy seems to be more resilient than expected to these shocks. Exports have certainly slowed in volume terms, but much less than some feared given the dollar’s appreciation and the global slowdown. Excluding oil products, exports held to a positive (but mild) growth trend in the first three quarters of 2015. American exporters managed to limit the damage through their pricing policy. Counter-intuitively, the dollar’s appreciation was not accompanied by higher export prices. To the contrary, they declined. Prices of consumer goods exports declined 2.4% between March 2014 and September 2015.
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by Alexandra ESTIOT