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By New_Deal_democrat July 21, 2015 9:29 am
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The strong US$ and the shallow industrial recession
The New York Fed is out with a research report estimating that a 10% appreciation in the US$ in a quarter leads to a cumulative loss in GDP over 2 years of -0.7%, most of which happens during the first year. http://libertystreeteconomics.newyorkfed.org/2015/07/the-effect-of-the-s...
 Here's the summary chart:

Of course, appreciation of the US$ doesn't happen in isolation, but the effect is significant enough that it can tip an otherwise soft economy into recession.

As the below graph shows, the recent appreciation of the US$ was about 12% against all trading partners, and it took place over 3 quarters rather than one (red, left scale), but the decline in industrial production that began last November (blue, right scale) is in accord with the NY Fed's analysis:

In addition to production, transportation of goods has been similarly affected.  First, here's rail (source: Railfax):

And here is the the Cass Truck Freight Index:

So why hasn't the US tipped into recession?  Because, in part due to a steep decline in gas prices, consumer spending, which is 70% of the US economy, has powered right along:

Neither the good effects of lower gas prices, nor the bad effects of a stronger US$ have fully played out.  In 1986, it took a full year for consumers to really start spending their gas savings.  Similarly, we won't be 1 year past the big appreciation of the US$ until the 2nd quarter of next year.

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