Just How Hard Did The Superdollar Pinch U.S. Factories?

In the 1980s, the surging dollar inflicted a surprising amount of damage on U.S. manufacturing profits. And that means U.S. companies are right to be worried about any future strengthening of the greenback against other currencies, especially European ones.

Between 1980 and 1985, the inflation-adjusted dollar rose by about 40%. It then fell back to its 1980 level by 1987, and bounced around in a narrow band through 1990. At its peak in 1984 to 1986, average annual manufacturing profits were $51.2 billion lower in 1987 dollars than they would have been during the three-year period had the dollar stayed at its 1980 level, according to a recent study by economist Juann H. Hung published by the Federal Reserve Bank of New York.

Indeed, the high dollar in the first half of the 1980s cut manufacturing profits by an average of $22.6 billion annually between 1981 and 1990, or 10% of total manufacturing profits. And when profits are pinched, manufacturers are likely to trim employment--as they did in the 1980s, when the strong dollar and eroding competitiveness led to a loss of 1 million jobs. It wasn't until the decade's end that manufacturing profits began showing small gains from a cheaper dollar, says Hung. Luckily, few economists expect a repeat of the dollar's surge in the first half of the 1980s in the early years of the 1990s. And the dollar is at record lows against the yen.