On the surface, the strengthening US dollar seems
to be good news, maybe even great news. It’s an outcome of a growing economy,
it increases business and consumer confidence that will lead to more growth, it
allows consumers to buy more imported goods, and it’s one of the causes of
declining oil prices.
But, if you look deeper into and at some of the
domino effects (especially here on the Niagara Frontier), you begin to develop
a contrarian view and see that a very strong dollar isn’t a good thing after
all. It’s going to have a negative impact on local retailers, manufacturers,
and dairy farmers – and, in turn, local residents.
Last week, the Canadian dollar dipped below 80
cents American for the first time in 6 years. It’s been a dramatic decline,
too: In January of 2014 the loonie came in at a smidge over 94 cents American.
It’s the common sentiment among Canadian policymakers and economists that their
dollar will drop to 75 cents or less this year.
It now takes over $1.25 Canadian to buy a
dollars-worth of product in the States. With such a negative exchange rate in
place, there will be fewer Northerners crossing the border to fill the parking
lot and shopping bags at retail destinations like the Fashion Outlets Mall
(where Canadians account for 82% of their sales). Aiding that sea change, the
relatively-new outlet mall on the Canadian side will keep them there as will
Congress’s plan to have biometric testing at our border which will take
crossing delays and headaches to a whole new level.
The results won’t be pretty. Less dollars spent by
Canadian shoppers equals less sales tax revenue for Niagara County. Less sales
tax revenue equals higher property taxes for Niagara County residents. If we’re
in this for the long-term – which I believe we are (the global economy is none
too healthy) – the County Legislature will have to get creative with its
finances in a year or two.
Buffalo-Niagara manufacturers will take a hit, too.
Most all of my company’s sales are domestically-based, our exports are such a
small percentage they don’t even merit discussion. But, we’re a minority in
that regard. Foreign trade is what drives local manufacturing. Western New York
plants exported a whopping $4.3 billion in goods in 2013. Almost 1 out of every
10 jobs in the region is a result of exporting.
During and after the Great Recession, exporting
really took off for American plants because the US dollar took such a beating
and was undervalued versus the Euro and other currencies. From 2009 to 2013 US
exports increased by an almost unfathomable 49.5%.
But, the tables are turning. It is now more
attractive for foreign buyers to train their sights on Europe and Asia where
they have better buying power.
Some economists believe that the decline in US
exports will be so sharp in the next 12 to 18 months that we are due for a
recession because of it thanks to the job cuts, loss of corporate income taxes
and lack of capital investment that comes with a drop in manufacturing.
Something more immediate, though, will be the
strong dollar’s impact on dairy farms. 2013 and 2014 were some of the better
years for dairy farmers in recent memory because of increased demand, prices
and profits from the explosion in yogurt consumption and -- here we go again –
exports.
In 2014, foreign shipments accounted for 17% of the
US dairy economy. That led to prices of $24 per hundredweight of milk. But, as
the American dollar has strengthened, the bottom has fallen in the dairy
market. A hundredweight is now $18. The USDA and ag experts believe the price
will tumble below $14 this spring and stay there for an extended period.
2015 will end up being one of the worst years of
the last 30 for dairymen, maybe as bad as 2009 when many farms across the
country lost as much as $200 per head. This year’s 40%-plus plummet in selling
prices will kill some smaller farms and will cause even the biggest ones to suffer
miserably. Who knows what 2016 will bring for them; probably more of the same.
So, while a strong American dollar may seem awesome
and something to be prideful of at first, it’s not. A dollar that’s too strong
creates short-term growth for the national economy, but, in the long term, it’s
dangerous – and Niagara County might prove to be Ground Zero for that.