Arizona exports are not likely to see much impact in the short term from the strong dollar. But retailers along the border say they are already feeling the effects of the reduced spending power of Mexican consumers.
Over the last year, the Mexican currency has gone from trading at about 13 pesos per dollar to a high of 17.28 on Aug. 25. It closed the week at 16.66 pesos per dollar.
In the meantime, the state’s exports to Mexico reached $4.75 billion as of June, an increase of more than $700 million from this time last year, according to the International Trade Administration.
Trade with Mexico accounts for about 40 percent of Arizona’s exports, so when those goods become more expensive there’s cause for concern, experts said, but that doesn’t mean there will be a large effect.
“The increase in the value of the dollar will weigh on exports as we move forward but it’s not the same as saying that exports will fall,” said George Hammond, an economist at the University of Arizona’s Eller College of Management. “Exports are driven by a variety of factors and exchange rates are just one of them.”
Mexico’s growth should be considered a driver for exports, Hammond said, and forecasts suggest the country will continue to develop, which helps demand. He noted the strong dollar will also affect imports but at about the same measured speed.
Manufacturers on the other side of the border said the exchange rate has so far brought no changes to the industry.
“The manufacturing for export sector has, in general, contracts for the plants in Mexico made in dollars. Their earnings are in dollars,” Emilio Cadena Rubio, head of the National Council of the Maquiladora and Export Manufacturing Industry, said during a conference call last month.
But while the sector is mostly protected from currency fluctuation, a continued drop in the exchange rate could lead to spiraling inflation, which would affect the 2.4 million workers in the industry, he said.
A strong dollar has the opposite effect in the United States, Hammond said, restraining inflation, which is a positive. But in places like Arizona, tourism can be negatively affected.
Even in that case, tourism is not tied to one single factor.
“To some extent the decline in gas prices can help offset the impact of the increase of the dollar. It makes it cheaper for people to get here than it was last year at this time,” he said.
Hard times
While the larger players have yet to feel the sting of a weak peso, in the shops of downtown Nogales, Arizona, its effects are evident, store owners said, with sales down as much as 50 percent.
“Retail in Nogales right now is a pretty tough go,” said Bruce Bracker, owner of Bracker’s Department Store on Morley Avenue, downtown’s main commercial drag.
“It certainly affected us over the summer, which are generally pretty slow months, and to have that on top of it, it was difficult,” he said.
Some merchants are trying different promotions to attract Mexican shoppers, including exchanging pesos at 14 per dollar on purchases.
Saleh Jada, co-owner of several shops on Morley Avenue, said they had hung up signs on storefronts and the response was modest. They are hoping that advertising on Spanish language radio would bring more people in.
“We’re doing it through September. We’ll think of expanding it if it shows results,” he said. “But there’s only so long we could do it for.”
Beyond the high exchange rate, the problem is that not as many people are crossing over, said Gregory Kory, owner of Kory’s bridal shop and La Cinderella.
“When we lived through the previous devaluations, and there were so many of them, things were slow for a few months but after that it came back to almost normal,” he said. “Now, we’re going on quite a few years of less traffic and less business.”
Pedestrian traffic through the Nogales ports of entry has been steadily declining for the last seven years, from a high of 7.7 million in 2007 to 2.8 million in 2014, according to Bureau of Transportation Statistics compiled by the University of Arizona.
Downtown merchants said long wait times at the border and a changing Mexican market filled with American chain stores have slowly sapped their customer base.
“Mexicans always depended on coming up to the United States to get particular merchandise, maybe the latest fashion, that they could not readily get in Mexico. What’s happening now is they can get it in Mexico,” Kory said.
“When you figure in the expense of traveling and the hassle of crossing the border, a lot of them are saying, ‘No, I’ll stay here.’”
Douglas crossings up
In Douglas, crossings are actually up this year compared with last, but that hasn’t necessarily meant a large increase in sales, Robert Carreira, director of the Cochise College Center for Economic Research, said via email.
“The declining value of the dollar hasn’t had a visible effect on border crossings at Douglas and Naco,” he said. “What’s likely, however, is that those coming across spend less while here.”
Although it was difficult to tie border crossing data directly to sales, Carreira said, on its face it was easy to conclude the exchange rate contributed to a drop in sales.
“The peso doesn’t buy as much as it once did, but also goods and services in Mexico become more affordable and thus more attractive relative to U.S. goods and services,” he said.
Shopping in downtown Nogales recently, Margarita Sánchez of Nogales, Sonora, said she would continue to buy in the United States because she preferred the products, but the strong dollar meant she would be buying less.
“It’s a habit, I’ve done it all my life, but my family earns pesos and where I used to buy three things I’m now buying two,” she said.
Merchants are confident that sales will pick up around the holidays but are less optimistic of what’s to come after.
“I love the Mexican customer — they’re very noble and they celebrate their Christmas and I’m looking forward to that. But we have to run a business all year long,” Kory said.
“Once we get past the holidays and into January, February, we’ve had stores that have closed here. We’ll see more stores close.”
