Weak Dollar Pumps Corporate Results, For Now
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What is the main topic discussed in this episode?
Your Money Briefing Money and market stories from The Wall Street Journal. I'm J.R. Whalen in New York. How does a weak dollar impact your stock portfolio? We'll break it down in a moment. First, these money headlines. The Wall Street Journal heard on the street team reports Americans are making more money but spending less of it.
How is the U.S. dollar's recent weakness measured and why does it matter?
With a tightening labor market making it harder to hire and keep workers, companies are starting to issue bigger paychecks. The Labor Department on Friday reports the Employee Cost Index, its comprehensive measure of pay and benefits, was up 2.7% from a year earlier. That was its biggest gain since 2008. That increase, by the way, does not reflect the extra money many people are taking home as a result of the tax cut. But more cash coming in the door hasn't translated to more spending.
What do recent labor and pay reports reveal about American incomes?
Friday's gross domestic product report from the Commerce Department showed the economy grew at a 2.3 percent rate in the first quarter, but that consumer spending grew just 1.1 percent. That's its weakest reading in nearly five years. And the journal's real-time economics team takes a look at how the tight labor market is driving up prices. They focus on a hair salon chain and how low unemployment drives up competition for workers, and the salons are forced to raise wages to lure or retain staff. But economists are puzzled as to why other sectors are not also significantly raising wages. See the full story at WSJ.com. This is your money briefing from The Wall Street Journal. Welcome back, everybody.
One of the economic factors driving the stock market is strong corporate earnings. And Wall Street Journal reporter Ben Eisen is here to discuss how the weak U.S. dollar is playing a big role in that scenario. So, Ben, just explain to us how currencies are weak and strong against each other.
So you have the U.S. dollar, and the dollar has a value relative to every other currency in the world, and they're always fluctuating. They trade back and forth, and they go up and down every single day. And that matters for everyone from consumers to companies. When you think about going to Europe and you have to change your dollars into euros, it's done based on the going exchange rate. And recently, the dollar has been weaker. It's been falling over the last about year and a half or year and a few months. And once it's fallen for that stretch of time, it really starts to impact companies.
So let's say you're going on vacation to London and you give the currency exchange clerk $100 and it's a weak U.S. dollar. How will that translate to what you get in return?
That means that your dollar is going to be getting less euros. Each one will be worth less relative to the euro. So all in all, it's more expensive for you to go on vacation because you'll be paying a bit more.
You mentioned the fact that over the past year or so, the dollar is down nearly 5% as compared to about 12 months ago. Is a 5% drop traditionally seen as a significant move?
Yeah, I mean, currencies are typically fairly stable, especially the currencies in the sort of most developed markets. You have the dollars, the world's reserve currency. So a 5% move is pretty big. And then when you look at this over a longer stretch of time, going back to the beginning of last year, fall is even more. So yeah, it's been something that people have definitely taken note of.
How has consumer spending trended despite rising wages and GDP growth?
So how is this benefiting U.S. companies who are doing business overseas?
So companies that have a lot of international sales, basically they sell a lot of their products to buyers that live elsewhere, places like Europe and Asia. Their products become cheaper for those buyers. So think of someone living in Paris that wants to buy a Ford. Something that's priced in dollars being converted into euros makes it cheaper because of the euro's relative strength. And that's something that can boost sales. It's not the main factor driving sales, but it's something that you definitely start to see show up, especially when the dollar falls as much as it has.
And as they say, as some people say, what goes down must go up.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:00–0:19
2
How is the U.S. dollar's recent weakness measured and why does it matter?
0:19–0:47
3
What do recent labor and pay reports reveal about American incomes?
0:47–3:11
4
How has consumer spending trended despite rising wages and GDP growth?
3:11–5:20
Speakers
2 identifiedMore from WSJ Your Money Briefing
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