Sure, the strong dollar is good for a lot of things--shopping sprees in Europe, if you're so inclined, and it's a great boost to national pride. Treasury secretaries always seem to support a powerful greenback too. Just last week, in Davos, Switzerland, Jack Lew said he does.
But the strong dollar is also shredding profits for U.S. small businesses that export, manufacture overseas, or sell to large multinational companies. That in turn may be bad for the broader economy, as it rouses itself from years of stagnation and slow growth.
In particular, financial advisers suggest exporting companies are likely to be hit in two ways:
"Small businesses with an exporting focus will be negatively [affected] as the stronger dollar makes their products more expensive overseas, and they further suffer revenue losses as they convert their overseas unit sales back into dollars," says Drew Nordlicht, partner and managing director of investment advisory firm HighTower Advisors San Diego, whose clientele includes wealthy entrepreneurs.
Since June the dollar has been on an upward march against other currencies, such as the yen and the euro. One dollar is currently worth about 118 yen and 0.88 euros, and that represents a 17 percent and a 19 percent decrease in those currencies, respectively, against the dollar since May. The unpegging of the Swiss franc from the euro mid-January has also caused chaos in currency markets, and has further pushed down the value of the European currency. But the U.S. is also in full recovery mode as economies around the globe languish, which further strengthens the dollar.
All this concerns business owners like Paul Golden, founder and managing partner of Schilling Ventures, a holding company, based in Naperville, Illinois, for ventures that build non-auto transportation and water filtration components.
Schilling, which employs 1,000 workers, operates four companies that manufacture in North America, Europe, China, and South Africa. Golden says the strong dollar has been hurting sales abroad.
"As an exporter, it is very difficult to compete, because the dollar price for the purchase goes up substantially for the customer," Golden says, adding that competitors who are native to foreign markets in which he sells can offer similar products for less money.
On the flip side, foreign competitors that export their products to the U.S. have been aggressively dropping their prices to ramp up sales.
"Customers are savvy about when they choose to buy with the U.S. dollar and when to buy with foreign currency," Golden says.
Manufacturers and exporters are not the only ones likely to feel the pain of the strong dollar, Nordlicht says. Any business that sells to large multinational companies would feel it as well. As The Wall Street Journal reported on Tuesday, multinational companies such as Procter & Gamble have taken a hit, and the strong dollar is forecast to shave $1.4 billion from profits.
That would also impact smaller businesses. As vendors of larger companies, small firms are likely to feel the bite as the multinationals cut back on orders as their earnings fall, financial experts say.
That also concerns Golden, whose companies sell to Boeing and other large multinational manufacturers. Although it's too early to tell for sure, the rising dollar could shave between 10 and 15 percent off revenue for at least one of his companies, he says.
On the Horizon
Even worse, Golden and others say that the strong dollar is likely to be an issue for some time, particularly as governments around the world embark on quantitative easing programs to stimulate their own economies. Such programs, in which central banks inject money into the economy by purchasing government bonds or other securities, can tend to have the effect, whether intentional or not, of lowering currency values at home.
"This is a trend that will continue into the foreseeable years," Nordlicht says.