The Federal Reserve’s record monetary stimulus since 2008 has accelerated a broad-based weakening trend in the dollar and buoyed export growth as it spurred foreign demand for U.S. products.
The CHART OF THE DAY shows the Fed’s Trade-Weighted Real Broad Dollar Index that tracks it against the currencies of 38 countries has depreciated 35 percent from its peak reached since 1973, the year global currencies began freely floating. A broad- based weakening of the dollar has aided a rebound in U.S. exports, the green line in the chart, during the past decade.
“Whether you look at the dollar relative to the developing or the industrial world, the U.S. is extremely competitive now,” said James Glassman, senior economist at JPMorgan Chase & Co. “It’s probably more attractive than it’s ever been for companies to locate in America. What we saw in the ’80s and ’90s with the strength of the dollar was the aberration. The weaker dollar aiding manufacturing is a big plus for the economy and this trend will continue.”
Exports accounted for a record 14.1 percent of gross domestic product in the third quarter of 2011, and held a year later at 13.9 percent, both up from a decade low of 9.2 percent in the second quarter of 2003, according to Bureau of Economic Analysis data. America’s trade balance, at a deficit of $48.7 billion in November, has shrunk from more than $67 billion in August 2006, while greater than the $24.9 billion deficit in May 2009.
The Fed more than tripled its balance sheet since 2008 to more than $3 trillion through its bond purchases, known as quantitative easing. The spiral in the value of the dollar has added to more fundamental trends of improving relative labor costs and falling energy prices in triggering a resurgence of manufacturing in the U.S. and exports, according to the Boston Consulting Group Inc. This growth will lead to between 2.5 and 3 million added U.S. jobs by the end of the decade, BCG predicted.
Apple Inc. Chief Investment Officer Tim Cook announced last year the company will invest more than $100 million to bring production of personal computers back to the U.S. Honda Motor Co., reliant on U.S. vehicle sales for more than half its profit, said in August it was investing $40 million at a Greensburg, Indiana, plant.
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