Research Briefing | May 10, 2023

A strong dollar means a tougher time for manufacturers

Despite the US dollar already moderating from a multi-year peak in late 2022, we expect it to remain relatively strong this year. We estimate the strong dollar – 10% up in trade-weighted terms since 2021 – will subtract 1.2% from real manufacturing GDP levels and 0.3% from real US GDP levels over the course of 2023.

What you will learn:

  • Domestic manufacturers of nondurable goods, specifically foods, chemicals, and petroleum products, are most at risk in our view. Durable goods producers are also at risk, though more so to long-term trends in the greenback rather than short-term fluctuations. Exports to emerging markets are more exposed to dollar risks than shipments to advanced economy trading partners.
  • Faced with reduced demand and profitability because of the strong US dollar, we also expect lower investment by manufacturers outside of a few segments that are benefiting from the Inflation Reduction and Chips Acts. Still, we haven’t found a meaningful statistical relationship between the dollar and labor demand, and believe the hit to manufacturing payrolls will be muted.
  • A stronger dollar does provide some help to US producers by making the imported cost of goods lower. Importers of foods and fuels will benefit the most. However, the benefits are too small to completely offset the downside impact on US manufacturing exports.
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