By: Dr. Mike Campbell
The saying is that every cloud has a silver lining. America is beset with mountainous debts, an uncomfortably high level of unemployment, political deadlock over the Federal budget, a declining house price and a downgrade of their economic outlook from stable to negative, courtesy of Standard and Poor’s. The upshot of all this is that the Dollar has been declining in value against other major currencies for some months – despite a dead cat bounce yesterday on the back of the demise of a certain Mr Bin Laden. However, the silver lining associated with a weaker currency is that it makes exports cheaper in importing markets and helps to boost demand.
The weaker Dollar has been credited with creating greater demand for American goods abroad as their prices become increasingly attractive. This has been identified as one factor which helped American manufacturing output beat expectations last month. The index came in at 60.4 for April and whilst that shows slowing from the level of 61.2 seen in March, analysts had been braced for a poorer showing because of hikes in the price of crude oil caused by political instability in Africa and the Middle East. The index is compiled by the Institute of Supply Management and is the 21st straight month of growth. A reading above 50 shows growth whereas a value below 50 shows that the sector is contracting.
The Federal Reserve suggested that the US economy was recovering from the deep recession caused by the global financial crisis “at a moderate pace”, in comments made last week. It noted that banks had made it easier for borrowers to get loans over the first quarter of the year; a necessary requirement for sustained economic growth.