The recent rise in the value of the U.S. dollar is a nice thing for those who travel abroad, but Connecticut exporters have been taking it on the chin.
Major manufacturers like United Technologies, Stanley Black & Decker, Barnes Group and Amphenol said weaker foreign currencies dragged down their collective sales by more than half a billion dollars in the first quarter.
Small shops too say the strong U.S. dollar is costing them business overseas.
The situation could lead to a slower-growing Connecticut economy, forcing exporters here and across the U.S. to reduce capital investment, wages and even employment levels, said economist Peter Gioia, vice president at the Connecticut Business & Industry Association.
A recent Moody’s Analytics report predicted a 0.6 percent decline in U.S. gross domestic product and as many as 400,000 lost jobs across the country if the dollar climbs another 15 percent this year.
“To lose out on currency, it makes it that much more difficult to expand,” said Gioia, adding that the stronger dollar is hurting an industry that generally has high-paying jobs.
The dollar rose approximately 9 percent against other currencies in the quarter ended March 31. The greenback’s relative value has since retreated somewhat, thanks in part to a weak first-quarter GDP report.
But it remains near a 12-year high, so companies are anticipating the effects through year’s end. In January, UTC cut the low and high ends of its 2015 revenue guidance range by $1 billion, partly because of currency concerns, while Cheshire drug maker Alexion Pharmaceuticals expects a $160 million impact this year.
“I think it is a problem,” said Kevin Cole, a partner in the New Haven office of accounting, consulting firm Marcum, who works with private and public exporters.
Cole said a weaker dollar following the Great Recession helped many companies survive the slow growing U.S. economy; now firms are experiencing the flip side of the coin.
How a strong dollar hurts
A stronger dollar primarily affects companies in two ways. It can make foreign competitors’ prices more attractive to customers as the price of U.S. goods rises. And, if a domestic company accepts foreign currencies when it sells its products abroad, the sales are worth less in dollars because of the weaker foreign currency.
The latter impact, sometimes called “adverse currency translation,” is what some of Connecticut’s biggest public manufacturers say is hurting their earnings.
The stronger dollar may widen the state’s existing trade gap. Last year, Connecticut imported nearly $8 billion more in goods and services than it exported, according to federal data.
The biggest impact of the strong dollar for Connecticut companies large and small is from Europe, Gioia said, which along with Canada and Mexico is a top Connecticut trading partner.
The Euro has fallen 9 percent against the dollar since the start of the year and more than 20 percent from a year ago.
That means Connecticut exporters — many of which already have modest margins — must contend with European competitors that can offer discounted prices without changing a thing.
“It’s rare that a [domestic] company can absorb a discount,” Gioia said. “It’s practically unheard of.”
A CBIA survey set for release later this month could shed more light on area manufacturers’ concerns, Gioia said.
Specialization advantages
Anne S. Evans, district director for the U.S. International Trade Administration’s Connecticut office in Middletown, said that some companies here are shielded from currency impacts because they make specialized products that don’t have direct rivals, or because they only accept dollars for their products.
Evans said she recently canvassed a dozen or so private manufacturers — many of them in the aerospace sector — who reported to her that customers have been grumbling about prices but that there hadn’t yet been any significant sales impact.
But Rocco Piccirillo, vice president of operations at Hartford hair and skin products distributor Beauty Enterprises Inc., blames the stronger dollar for a recent and rare decline in sales at his company.
Approximately 30 percent of Beauty Enterprise’s sales are exports, many of which go to Nigeria, Europe and Dubai. Exports have been a fast-growing segment for the company, but the rise of the dollar has hurt in recent months.
“This is the first quarter in 41 years I can remember being down, and it’s pretty substantial,” Piccirillo said.
Overseas customers get used to paying a certain price, so some have been letting their inventories dwindle while the dollar remains high, he said.
Piccirillo said low oil prices and Nigeria’s recent election — which ousted its first Democratic president since 1999 — have also hurt sales in that country.
Beauty Enterprises has turned to the U.S. Export-Import Bank to provide credit to some customers so that they may continue to buy. Piccirillo said he is also hopeful that things calm down in Nigeria and that customers will increase their purchasing.
Though the stronger dollar is hurting sales and may lead to reduced spending, there could be a silver lining, said Marcum’s Cole.
“Some companies are focusing on the U.S. as a bigger and more important source of revenues and profit,” said Cole, adding that one of his clients is looking for a U.S. acquisition because its management is wary of being overly reliant on the weakening Euro.
