The US dollar accelerated its broad decline in October, hinting at a slight boost in fourth-quarter financial results for American companies doing business overseas.
US-based companies saw a small windfall in the third quarter, but this month the depressed dollar has already outdistanced its decline in all of that quarter.
"Most of the (recent) decline in the dollar has come in the fourth quarter - in October - so I wouldn't expect to see much impact in third-quarter earnings," said Steve East, chief economist with Friedman, Billings, Ramsey, financial services company in Arlington, Virginia.
"My guess is that there may be ... perhaps a larger effect in the fourth quarter, if the dollar weakens" further, he added.
So far this year, the dollar has traded in a fairly narrow range against other major currencies. Measured on a trade-weighted basis against a broad range of currencies, the dollar weakened about 1.5 percent from July through September, but has slipped more than 2.5 percent in October.
The euro gained about 2 percent against the dollar from July through September. The single European currency extended its gains sharply in October, notching an eight-month high on Tuesday. Those gains may suggest the EU has been kinder to US manufacturers with a larger presence there than in other regions.
Although the dollar dip was minor in the third-quarter, US companies that trade globally added to their earnings as the greenback slid lower in foreign markets.
"Generally, a weaker dollar is positive for corporate America because it boosts the competitiveness of their products in the global market place and because it enhances the US dollar value of their foreign currency earnings," said Alex Beuzelin, senior strategist at Ruesch International in Washington.
The recent slight declines for the dollar are far from the steep slide for the US currency in 2002 and 2003. In those two years, the dollar tumbled some 25 percent, drawing cheers from US exporters who said they had been hurt by dollar strength in 2001.
For some US companies that do business overseas, a dollar downtrend can boost revenues by making their US-made goods more affordable to foreigners, thereby stimulating overseas sales.
3M Co, the maker of Scotch tape, Post-It notes, medical products, optical films and other products, earlier this month said the effects of the weak dollar boosted third-quarter sales by 2.5 percent. Based in St. Paul, Minnesota, 3M gets more than half its sales from overseas.
New York-based Avon Products Inc, the world's largest direct seller of cosmetics, on Friday saw a boost of only 1 percentage point in third-quarter sales due to the weaker dollar. That advantage was 5 points in the first quarter this year as well as in the fourth quarter of 2003.
Dollar weakness also can be valuable to US-based companies when they convert into dollars revenues made in the local currency of a foreign country. For example, a dollar decline against the euro means a company in the US could have added to earnings as the euro gains value against the US currency.
Supplementary health insurer AFLAC Inc this week said the weak dollar versus the Japanese yen helped boost revenue. The Columbus, Georgia company earns about 75 percent of its sales from Japan.
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