Dollar’s rally spreads economic pain from Manhattan to Detroit

The dollar rally has weighed on companies with substantial international sales, from retail giant Wal-Mart Stores and iPhone maker Apple to industrial manufacturer United Technologies Corp.

Bloomberg/New YorkThey worked overtime. They saved for a year. And they wound up spending their long-awaited New York City vacation in a run-down hotel in Chinatown.Petala Gomes Ribeiro, a 29-year-old botanist from Brazil, and her 35-year-old boyfriend, Cid Fiuza, a journalist and guitarist, are among the tourists in New York feeling the pinch from the dollar’s 17% surge in the last year.“If I knew the dollar would be this expensive, I never would have come,” Ribeiro said while walking around the Times Square area.It’s not just foreign travellers who are hurting. With the greenback surging against all of its major peers over the past year, exports are slumping, squeezing domestic producers.In Detroit, makers of cars and automotive technology are finding that their goods are “more expensive and more difficult to sell in global markets,” said Sandy Baruah, chief executive officer of the regional chamber of commerce. US exports of cars, parts and engines fell almost 4% in the first half versus a year earlier, data from the Bureau of Economic Analysis showed.The dollar rally has weighed on companies with substantial international sales, from retail giant Wal-Mart Stores and iPhone maker Apple to industrial manufacturer United Technologies Corp.Wal-Mart cut its annual profit forecast last week, saying currency exchange would reduce earnings. The Bentonville, Arkansas-based company has been increasing its overseas exposure, boosting the number of international locations by 54% in the past five years to more than 6,300, according to data compiled by Bloomberg. Last year, the company earned about 28% of its sales, over $136bn, abroad.And while sales of iPhones have been resilient so far, “in the long run, a strong US dollar is not a positive for our international business,” Luca Maestri, Apple’s chief financial officer, said on a conference call with analysts following its third-quarter earnings report. United Technologies, the Hartford, Connecticut-based maker of Pratt & Whitney jet engines and Otis elevators, called foreign exchange the biggest issue it is facing this year.The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, has climbed 6.4% in 2015, set for a third year of gains. As the Federal Reserve heads toward its first interest-rate increase in almost a decade, policy makers say the currency’s advance will probably curb net exports and crimp growth in the second half.The rising dollar “has done damage” to some Corps, said Robert Tipp, chief investment strategist in Prudential Financial’s fixed-income unit, which oversees $560bn. “It’s taking some of the edge off growth.”The hit to tourism may be just beginning, since vacations tend to be booked months in advance. The number of visitors to the US is forecast to rise by about 1% this year to 75.8mn, and growth would be stronger if it hadn’t been for the dollar’s rally, according to Tourism Economics, a forecaster in Wayne, Pennsylvania. That compares with a 6.8% increase in arrivals last year.With the specter of a slowdown looming in New York, the tourism bureau has responded to travelers’ tighter budgets by creating a website that lists free and low-cost attractions. The bureau still expects visitor numbers to rise 3% to 58.1mn this year despite the surging dollar.While foreign travelers will continue to visit the US, they’re expected to economise by shortening their stays, shopping less, or eating more cheaply, said David Huether, senior vice president of research at the US Travel Association, an industry group in Washington.“It’s expensive - the exchange rate is not good for us,” said Maria Frontera, a legal assistant from Cordoba, Argentina who was shopping for sweets at Dylan’s Candy Bar in New York. One peso from her country, worth 11 cents under the official exchange rate, “doesn’t buy anything” in the US, said Frontera, who’s taken free tours and walked around the city instead of using public transportation.As the Brazilian couple, Ribeiro and Fiuza, set off on the two-mile walk from the illuminated billboards of Times Square in search of a blues bar in the West Village, they laughed at the idea of taking a taxi. “They’re for rich people,” Ribeiro said.