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 "And there it is, staring you right in the face," says Hickey,
president of Chicago-based steel company Lapham-Hickey Steel, about
the dollar's continued strength. "The strong dollar is going to be
bad for us and it’s going to be bad for the U.S. industrial
economy."
Mid-sized U.S. manufacturers, such as Lapham-Hickey, are likely to
bear the brunt of the dollar's climb that has lifted it nearly 10
percent against the euro and 7 percent against major currencies
since mid-December. Foreign exchange strategists polled by Reuters
shortly after the euro hit an 11-year low of $1.11 on Jan 26 cited a
nearly one-in-three chance the euro would hit parity or lower in the
coming year.
Multinational giants with operations around the world are less
vulnerable because they have costs in local currencies that act as
de-facto currency hedges. But small and medium-sized U.S. firms,
which account for about a third of U.S. exports, worry that the
strong dollar will make their goods more expensive in foreign
markets and less competitive at home.
While most major currencies, including the yen and the pound, have
been weakening against the dollar over the past months, the euro
tumbled the most in recent weeks, a boon for manufacturers in
Germany and beyond.
Hickey has not yet laid off any of the 600 workers at the company's
six plants, five around the Midwest and one in Connecticut, and is
seeking new customers to offset lost business. But he worries about
the dollar's impact on key clients, such as Caterpillar Inc, Deere &
Co or major automakers.
Caterpillar CEO Doug Oberhelman voiced his concern in a Jan. 27 call
with analysts, saying Japanese, UK or German rivals had "quite an
advantage over their American competitors."
Some say the real pain has yet to come given that particularly the
euro's sharp losses have been a relatively recent phenomenon. Others
point out that tumbling oil and commodity prices have made it harder
to discern the currency effect.
Indiana Manufacturers Association president Patrick Kiely said the
dollar was just one agenda item at a recent board meeting. "There
are so many moving parts, it's really too early to tell."
Drew Greenblatt, president of Baltimore-based Marlin Steel, which
makes custom metal forms from baskets to hooks, says weak eurozone
demand so far is a bigger concern for his business than the strong
dollar.
"We're not hearing from customers 'your products are too
expensive,'" Greenblatt said. "We're hearing 'the project has been
canceled because the economy is in the tank."
Still, he expects a strengthening U.S. economy to more than make up
for stagnant European sales, predicting Marlin Steel’s revenue will
grow to $7 million this year from $5.5 million. Over the next 18
months, Greenblatt plans to spend $2 million on new robots, expand
his factory floor and add 10 new employees to his 30-strong work
force.
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Bill Dunkelberg, chief economist at the National Federation of
Independent Business (NFIB), sees similar pattern among many other
small and medium-sized businesses.
"The fact that the U.S. economy is bopping along really does help,"
he said.
The latest evidence of its improving health came on Friday, with
non-farm payrolls shooting up by 257,000 last month, beating
economists' forecasts.
The flip side is that European rivals are also taking note. In a
survey released by the German American Chambers of Commerce in
December, just as the euro was starting its swoon against the
dollar, 98 percent of German firms polled said they expected to grow
their business in the United States in 2015.
The survey focused on German Mittelstand, or small and medium-sized
firms which generally do not have U.S factories.
"To these firms, 2015 looks like a very rosy year," said Mark
Tomkins, vice president of the German American Chamber of Commerce
in the Midwest.
"We see tremendous potential in the U.S. market," says Andy Stecher
who runs the North American operations of German firm Plasmatreat.
For the company, which makes machines that apply plasma technology
for everything from airplane wings to car headlights, the growing
U.S. economy is more important than currency fluctuations, Stecher
says. But the strong dollar comes as an added benefit and
Plasmatreat expects to boost its U.S. sales.
The NFIB's Dunkelberg said customers of U.S.-based manufacturers
were unlikely too switch suppliers if the dollar's strength proved
short lived, but the longer it lasts, the greater the impact.
"If it becomes clear that we're expensive and we're going to stay
there for a while, customers will adjust and then we'll feel it," he
said.
(Additional reporting by Lewis Krauskopf and Noel Randewich, Editing
by Tomasz Janowski)
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