Weak dollar has mixed results for U.S. businesses

By Ashley M. Heher
Associated Press
via Journal Gazette and Times-Courier
Mattoon, Illinois
Friday, December 15, 2006

http://www.jg-tc.com/articles/2006/12/16/ap-state-il/d8m1dgr80.txt

CHICAGO -- A weakened U.S. dollar used to mean big money for domestic manufacturers such as Draper Inc.

Not anymore.

As late as 2004 employees at the Spiceland, Ind.-based company would study European currency shifts weekly. A weak dollar, which makes the company's blinds and projection screens cheaper for overseas customers, once led to a 40 percent boost in demand for its exports.

Now, as the dollar hits near-record lows against foreign currencies, the privately held company says it has seen a modest 10 percent increase in exports -- a segment that accounts for about a fifth of Draper's sales.

"Before, it would make or break our export business," said Chris Broome, a contract market manager with the company. "But now the change that it makes is not nearly that significant."

That's because the company's competition has moved from France and Germany to China, where the yuan is largely pegged to the dollar.

Throughout corporate America, companies said they've been able to gird for the dollar's downward spiral; the greenback hit its lowest level in 20 months against the 12-nation euro while brushing a 14-year low against Britain's pound. The global economy and rising consumer spending seem to even out the bumps, they said.

"Over time, it tends to flush out in the system for us," said Todd Blecher, a spokesman for Chicago-based Boeing Co., one of the nation's largest exporters, which last year had $54.8 billion in sales. Airlines factor a number of variables besides currency in their decisions, he said.

This year, the dollar has lost nearly 7 percent of its value against an index of major foreign currencies, according to the Federal Reserve Board. And experts don't expect the drop to end soon. The dollar fell further against the Euro and the British pound on Tuesday after the Fed, as expected, left interest rates unchanged for the fourth month in a row, citing slow economic growth.

"In general, we look for dollar depreciation against most major currencies until the end of 2007," said Dustin Reid, a senior currency strategist at ABN Amro bank in Chicago.

For trans-Atlantic travelers, the decline in the value of the dollar benefits Europeans while making Americans feel poorer abroad. Nevertheless, travel to Europe is rising faster than visits to the U.S., officials at airlines and large travel agencies said.

At the same time, the numbers of people taking these kinds of trips clearly is not large enough to make a huge impact on airlines.

American Airlines, the nation's largest carrier, said that over the past few months trans-Atlantic flying originating in the U.S. is up, while trans-Atlantic flying originating in Europe is down. "Those facts would counter the idea that a strong Euro is doing much either way in the trans-Atlantic market," spokesman Tim Wagner said.

Americans still are drawn to Europe and aren't being deterred by the decline of the dollar, said Maggie Blehert, a spokeswoman for Carlson Wagonlit Travel Inc., the world's second largest travel agency.

Blehert said she was leery of making too much of anecdotal stories about Europeans who travel to America simply to take advantage of the declining dollar.

"Something tells me if you're coming to New York from Europe to do your Christmas shopping... you've obviously got some expendable income," she said.

Perhaps a more significant consequence of the falling dollar for the airline industry is that it can lead to higher fuel costs.

Because crude oil is sold worldwide in U.S. dollars, a decline in the value of the currency diminishes oil producers' buying power in Europe and Asia, making them more likely to limit output in order to raise prices.

Jet fuel, which is derived from crude, is now roughly tied with labor as the biggest operating expense for U.S. passenger airlines, a major reason why the industry is grappling to sustain profitability.

Atlanta-based UPS Inc., the world's largest shipping carrier, said it has structured its business to weather both good and bad currency fluctuations.

"At any given moment we will see some currency in some part of the world weaken against others, but in the case of our business, it all evens out," said Norman Black, a company spokesman. "We wouldn't ascribe any operating difficulties to a weakening dollar or a weakening euro or a weakening sterling or a weakening Canadian dollar."

Elsewhere, though, the dollar's downward spiral hasn't been so well-received.

In the past five years, Boston-based Academic Studies Abroad, which sends American students to foreign universities, has had to hike its tuition fees nearly 20 percent to compensate for the dollar's performance.

"We really do get hurt on it," said Lee Frankel, the company's director. "And we're not making any more money than we used to. It's simply that we now have to account for the exchange rate and inflationary increases."

Academic Studies Abroad publishes its tuition costs nearly a year in advance, but if the dollar falls outside expectations, the organization can find itself undercharging students. It also pays nearly two-thirds its staff in the currency of their local country.

"When you see these spikes, they don't necessarily feel like their salary's increased, but we certainly do," Frankel said.

A seasonal worker from Koszalin, Poland, Emilia Petkowa first came to the U.S. in 2003 to spend a summer working in a grocery store in the beach-front community of Ocean City, Md. Earning $8 an hour, her wages were worth more than four times that when converted to Poland's zloty.

Now on her third stint in the states, Petkowa, 26, earns $10.75 an hour in a management training program at a candy company. But as the dollar declines against the Polish currency, her wages have dropped, too. (One dollar is worth about 2.9 zloty.)

"That's a huge drop," said Petkowa. "As long as I'm here, I'm not too concerned about it, but once I go back, it will certainly make it more difficult for me. ... It's no longer profitable for Polish people to come to the U.S."

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