ABC News' Bianna Golodryga reports: Thank you, weak dollar! For the second day in a row, Wall Street has been greeted by better-than-expected economic news.
This morning it was a better-than-expected revision in second quarter economic growth. GDP growth between the months of April and June was revised up to 3.3 percent after original estimates from the government called for an upward revision of 1.9 percent.
Hey, in this environment, it's kind of nice to have low expectations every once in a while, right? Especially after the pitiful 0.9 percent growth reported for the first quarter of the year.
The breakdown of the report explains it all: exports, exports, exports...
They were up 13 percent in the second quarter on the heels of foreign markets gobbling up U.S.-made products as if they were preparing for a storm (and I’m not talking about Gustav, but more on that later).
That same drive for U.S.-made products overseas also explains the uptick in durable goods orders, which climbed 1.3 percent in July. It's clear that even if U.S. consumers have gone on a spending diet, U.S. businesses catering to international buyers are still charging full steam ahead after a weak U.S. dollar has made them much more competitive in the global playing field.
That's right, folks -- it's all about the steep decline we've seen in the U.S. dollar and it may be one reason why the government and Mr. Paulson (while always sticking to the mantra of a strong dollar policy) have been lax about enforcing one over the past year.
In July, the U.S dollar hit a record low of $1.6038 against the euro, making U.S. products and U.S. real estate bargain investments. And in no place in the country is this trend more evident than in New York City, where every other person walking down the street is carrying bags full of merchandise, and nearly each on of them is speaking in a foreign tongue. On a recent flight back to New York from Texas, I overheard a conversation between two non-New Yorkers, who were visiting the Big Apple for the first time, discussing how every other person on the street is a foreigner. You know the saying, when everyone becomes an expert on a trend, be it dot-coms, real estate and yes, tourism, you've reached its peak? That could be the case here.
In recent weeks, the dollar has jumped more than 5 percent versus the euro, putting it on course for its best monthly performance in nine years. That resurgence has less to do with a strengthening U.S economy and dollar but more so with a slowing global economy. Coming on the heels of the U.S. slowdown, the global economy’s woes show that even despite globalization and its effects, when the U.S. sneezes, the world still catches a cold (though perhaps not as quickly as it used to).
It's becoming clear that the credit crisis is spreading beyond the U.S at a steady pace. Economic forecasts throughout Europe have been gloomy as of late. The housing markets in Spain and the U.K. are quickly deteriorating, while polls in Europe's largest economy, Germany, show a great deal of consumer and business worry and angst. The same is taking place in Japan and yes, even the unstoppable China (which, don't get me wrong, is still growing, albeit in the single digits -- analysts are now calling for China's economic growth to drop to 9 percent this year, down from 11.4 percent in 2007.)
So what will happen in September, which is historically a lousy month for the markets? Who knows? It's impossible to gauge where the market will close today, much less what it will be doing next month. As Arthur Cashin, head of floor operations for UBS, rightly pointed out this morning, the Thursday before Labor Day has "a rather negative history over the years, in the last 11 years, it has been down ten times."
Judging by today's strong open, it may break that trend, thanks again, to a weak dollar. But, with Tropical Storm Gustav charging ahead, and oil prices climbing in tandem, the hurricane could give the dollar a run for its money, literally. The AP has been reporting that if Gustav attacks the same region as Katrina, the Bush administration could tap into the Strategic Petroleum Reserve. Planalytics, a provider of business weather intelligence reports that the storm could force closed around 85 percent of oil-producing platforms in the Gulf of Mexico.
But for now, market bulls are in charge, as the Dow is up triple digits on news that the summer has not been nearly as bad as expected. The bears? Well, they are just reminding the bulls that those initial expectations were nothing to brag about.