Dollar's decline could boost some industries

updated 1:48 p.m. ET April 23, 2007

NEW YORK - During the Great Depression, New York’s ebullient mayor Fiorello LaGuardia dubbed the popular marble lions that frame the steps of the city’s main library Patience and Fortitude — a reference to the strengths the city’s denizens would need to summon to survive the economic tumult.

Robert Brown, chief investment officer at Genworth Financial Asset Management, contends Americans eventually will need to call on those same attributes if the U.S. dollar continues to fall as he and many other analysts expect.

“The forces are so clear cut, so self-reinforcing,” he said of the decline. “Nobody can figure out the timing.”

While the economic shift likely would draw out some winners in the U.S. economy, such as companies that sell goods and services overseas, it would also likely sharply reduce America’s purchasing power and cause seismic shifts in some sectors of the economy. For example, factories once deemed too expensive to operate in the United States might again turn out products such as clothing that could become expensive to import.

The dollar’s decline has taken place over a period of years, but more recent pullbacks have tested historical benchmarks. The dollar, which began to weaken broadly in early 2002, has fallen more than 50 percent from its October 2000 trading peak against the euro. It has recently come close to hitting its record low against the 13-nation currency and is near a 26-year low against the British pound.

“Over the long term, having your currency fall 50 percent is another force for change in the economy and that will create social pain. There are slices of the economy that will have to get restructured, that will have to go away. They’ll have to get replaced with other ones,” Brown said.

Initially, the changes could appear mild, even pleasant. U.S. companies that sell overseas can reap big gains when they make sales in a stronger currency and then translate that back to dollars. This past week, IBM said its first-quarter revenue rose 7 percent to $22 billion. However, without the benefit IBM enjoyed by converting foreign revenue to dollars, sales would have risen only 4 percent.

“It makes us more competitive in the goods we sell,” said Axel Merk, noting one of benefit of a declining dollar. However, he sees room for concern. His Merk Hard Currency Fund largely invests in currencies other than the dollar.

And of course a weaker dollar means travelers to the United States from places such as Europe would see “sale” signs everywhere they looked. Even those staying longer, such as foreign students, could find it less expensive to study in the United States.

“The falling dollar has been like a giant life-preserver for the U.S. travel industry,” said Allen Kay, a spokesman for the Travel Industry Association. He said weakness in the number of foreigners traveling to the U.S. since the Sept. 11, 2001, attacks would have been much worse had it not been for a falling dollar.

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