How much longer for dollar strength?
Despite the plethora of data that has come out recently, one thing that has occasioned very little comment is the outlook for U.S. exports. Exports are generally not a big factor in the subset of companies involved in the ISM survey, but the plunge in export orders to 34.5 suggests that U.S. exports, hitherto a support in an otherwise collapsing economy, could be in big trouble as well.
U.S. November ISM Non-Manufacturing Index: Summary
Nov. Oct. Sept. Aug. July June May April March 6-mo Avg 2008 2008 2008 2008 2008 2008 2008 2008 2008 Composite Index 37.3 44.4 50.2 50.6 49.5 48.2 51.7 52 49.6 46.7 Export Orders* 34.5 50 50.5 44.5 47.5 52 54 48.5 55 46.5 Import Orders* 40 52 47.5 46 49 50.5 48 50 54.5 47.5
U.S. November ISM Non-Manufacturing Index: Summary, December 3, 2008, Bloomberg
Note that the export order index is falling faster than the import order index. The recent strength of the dollar is clearly having an impact. The combination of these two sub indices of the manufacturing ISM shows the substantial positive differential of exports over imports has disappeared. The same sub indices for the non-manufacturing ISM may be telling us once again that the whole trade improvement that was such a positive for the U.S. economy in recent quarters is about to disappear and may even reverse. This ominously echoes what happened in the wake of the Asian Financial Crisis in 1997/98, where a flight into the dollar from the Asian currencies triggered a huge deterioration in the U.S. current account and a further hollowing out of the country’s manufacturing base. With Detroit already on the verge of collapse, the decline of the Korean won from 900 to 1400 massively improves Korea’s competitiveness in the U.S. auto market. If dollar strength persists, then no bailout or no bailout, GM, Ford and Chrysler are toast.