(Original publication: October 8, 2007)
As Carol Fleischmann shopped for women's shoes at p.ross, an upscale clothing retailer in Nyack, she reflected on how her spending habits might change because of the rising costs of the Italian imports lining the sales floor.
"It certainly makes you more cautious as to how you arrange your wardrobe," said Fleischmann, of Piermont. "You have to be a little more selective in the way you shop. You might buy an item or two less. I don't feel I have the freedom to splurge."
Largely because of a powerful economic force beyond its control - the weakening dollar - the store had little choice but to raise the price for a pair of women's low-heeled dress shoes from $140 to $154 in six months. Other items on the sales floor cost more, too. A women's cardigan sweater is priced at $150, up 8.6 percent over the same period, and a leather handbag is marked at $382, up 7.6 percent. All of the products were made in Italy.
"I like to come here because I know that I will find something unique," said shopper Terry Graves, a real estate agent in Nyack. "But you have to be prepared to pay more for it."
When the once-mighty greenback weakens, clothing and other goods manufactured in foreign countries and shipped to in the United States rise in cost. In the Lower Hudson Valley, and across the nation, the sticker shock means that consumers often are paying more for imported gasoline, cars, wines, cheeses, electronics, furniture and numerous other items made abroad.
"When I see these prices, it is, 'Oh my goodness,' " said Paulette Ross, who has operated the p.ross store for two years. "The challenge is to find something on the lower end so that consumers are not completely shell-shocked when they walk into the store. There is a limit to what the consumer can take or absorb if the dollar keeps going down."
There is little sign, however, that relief is on the way for merchants like Ross. The dollar has lost 35 percent of its value against a basket of six major currencies in six years. It has fallen to its weakest levels since 1973.
The dollar's slide stems partly from mounting pressures on the U.S. economy that include a federal government and consumers spending beyond their means, a soaring trade deficit in which imports far exceed exports, a shaky housing market and rising mortgage defaults by riskier borrowers.
Pessimists such as Robert H. Parks, a finance professor at Pace University, maintain that the weakness of the dollar is only in the early stages. If the trends continue, he said, the dollar could fall another 25 percent or more.
"If you keep running out-of-control budget deficits for years and years, it will culminate sooner or later in a major financial crisis in which the dollar plunges, interest rates spike and the stock market goes into a major nosedive," he said. "There already is a lot of fear out there."
'The costs were just astronomical'To some consumers, speculation about the dollar can seem to be an abstract, academic exercise that is remote from their daily lives.
But in reality, currency movements hit consumers in many ways.
Just ask Richard Esman, co-president of Rich Worldwide Travel in Harrison. On a recent trip to England, Esman and his wife, Michele, discovered that higher costs of traveling abroad are an offshoot of a weak dollar.
When they went into a London restaurant, the couple were shocked to pay $48 for two hamburgers and two sodas. A 10-minute cab ride cost about $15. A hotel room? Try $350 a night.
Esman figures the costs overall for an English vacation have jumped 50 percent in three years, a period during which the dollar weakened significantly against the British pound and the euro.
"The costs were just astronomical," Esman said.
Esman's travel agency has taken steps to help keep costs manageable for customers, including negotiating preferential rates with European hotels and package deals that include breakfast with the hotel stay. Cruises also have become more popular, because travelers can sleep on the ship and avoid the sticker shock of foreign hotels.
"People are still traveling because it is a favorite American pastime," said Allen Rich, executive director of Rich Worldwide Travel, which has offices in Westchester, Rockland and elsewhere in the region. "But we are concerned about the exchange rates. Eventually, it could reach a point where it really would affect the traveling public."
Changes on the local level: higher pricesThe weak dollar also means higher prices for imported wines and liquors. At Armonk Wines & Spirits, a bottle of imported Johnnie Walker Blue Scotch sells for $220, up from over $170 a year ago. Prices of some French wines are up 10 percent to 15 percent, said owner Gael Lorenzen.
Even a small cup of coffee has risen from $1.50 to $1.55 at Moonbean Cafe in Briarcliff Manor, because most coffee beans are imported. The weak dollar is just one of the added cost pressures for the store, which also is affected by the higher costs of gasoline and milk.
"In some ways, it comes back home to everyone," said Abigail Wallace, owner of the cafe. "You have to explain to customers how the prices of everything have gone up significantly."
When Barry Kirschner began working 30 years ago at Lubin’s of Westchester, a clothing store for boys and men in Greenburgh, about 70 percent of the store’s merchandise was made in the United States. At the time, he made trips to New York City to pick up sport coats, overcoats, shirts and neckties manufactured there. Thirty years later, production has largely moved to lower-wage countries.
With 90 percent of the clothing sold at Lubin’s imported from Italy, Eastern Europe or Asia, the weak dollar is having a major impact on prices. In one example, the price of an Italian suit for boys is $375, up about 9 percent from a year ago. Kirschner, owner of Lubin’s, said that his profit margins on the suit are down because he didn’t fully pass on his higher wholesale costs to consumers.
“If the dollar continues falling at the same levels, it will really hurt small retailers,” Kirschner said. “You can’t continue to absorb the price increases. You still have to pay the rent and basic expenses even though your margins are being squeezed.”
Harder for U.S. companies
Inflationary pressures are a real concern as prices of imported goods go up, economists said.
“Because imports are more expensive for us to buy, we have become a little less rich as a country,” said Lawrence White, professor of economics at New York University’s Stern School of Business. “Our resources buy less of the world’s resources. That is the real downside of currency depreciation.”
Ann Davis, assistant professor of economics at Marist College, said the declining dollar could make it harder for U.S. companies to make foreign acquisitions and also could make U.S. companies more susceptible to foreign takeovers.
“As the dollar weakens, some of the merger and acquisition business could shift to countries with stronger currencies,” Davis said. “The whole issue of New York City as a financial capital also is a little more up for grabs.”
A weak dollar, however, is not all bad.On the positive side, U.S. exports become more competitive overseas as the dollar falls. That can help increase the sales and profits of large multinational companies that derive a big chunk of their orders in foreign markets.
For example, more than half the sales of IBM Corp. originate outside the United States. For PepsiCo Inc., international sales are about 37 percent of its business. During the second quarter, PepsiCo’s international profits grew 18 percent, more than four times faster than the profits in its North American beverage business.
“Some U.S. companies are doing well domestically and overseas,” said Charles Lieberman, chief investment officer at Advisors Capital Management in Paramus, N.J. “The weakness of the dollar enhances their competitive position.”
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