European Stars And Stripes (Newspaper) - May 14, 1989, Darmstadt, Hesse                                Page 18 the stars and stripes sunday May 14,1989 business news Buck manages of weather another scare the Dollar has been doing a Good Job of ignoring negative economic news the past few weeks. It even managed to break through the 1.91 Mark level last week setting an eight month High in the process. That move up came despite an array of signals that the . Economy is running out of steam while some trading partners economics arc heating up. Consider these facts West Germany appears headed for a higher than Cvar Trade surplus. German exports hit a record 55 billion Marks $29 billion in March an increase of 9 per cent Over the pre Vious month. Mean while in the United states unemployment is up and the Pace of new Job creation has slowed. By Randy Mcclain and on Friday came word that . Producer prices Are Only marginally on the Rise. The Dollar also weathered that economic storm even though it was rough going for awhile. Here s How the Day s events unfolded i Europe at approximately 2 30 . In Central Europe the . Labor department announced that the pro Ducer Price Index was up Only 0.4 percent in april. Currency traders had expected As much As a 1 per cent Rise. Within an hour the Dollar had fallen almost two pfennig to Trade at 1.8910 Marks. The . Federal Reserve and european Cen trial Banks repeatedly intervened in the Market Selling dollars for Marks to drive the Buck to its Low Point. Then something remarkable happened. The Dollar reversed course to finish the Day in Europe exactly where it had started 1.9140 Marks. Against the British Pound the Dollar stood at $1.6643, also virtually the same level at which it had ended trading thursday currency traders arc Uncertain what the future will bring. The inflation Rale in America right now looks under control said Gunter Tucich currency analyst with the Bank of Boston in Frankfurt West Germany. He thinks the Dollar might Back off its recent highs. But other currency traders say there is still demand in the marketplace for dollars. One fac Tor weighing in favor of a continued Dollar Rise is the possibility of violence in Panama where confrontation Between the United states and Gen. Manuel Antonio Noriega is brewing. In times of International strife the Dollar is seen Asa Safe Haven currency by Many investors. One of the big questions remaining to be an swered before the direction of the Dollar be comes Clear is How serious american and euro Pean Central Bankers will be about keeping it in Check. On Friday the fed dumped dollars in the Market at least twice in Europe and did the same in new York several times later in the Day according to published reports. The problem was that the intervention did t have a lasting effect. One possibility currency traders will watch for closely is whether any european Central Banks in particular the West German Bundesbank raise interest rates in an attempt to bolster their currencies in the next few Days. Such a move would be aimed at closing the interest rate Gap that exists Between the United states and Europe the goal would be to woo investors away from Dollar denominated investments by offer ing improved yields on this Side of the Atlantic. One final note the military banking Exchange rate for this weekend was set before the Dollar s roller coaster ride. Based on a Price fixing at mid Day Friday in Frankfurt the Dollar is Worth 1.89marks. That rate will hold at least through tuesday at Community banking facilities in West  is a Holiday in the country. The Sim ind strip profits for Many companies off to fast Start this year by Cindy Skrzycki and Stuart Auerbach Washington Post a combination of higher prices and Tough Cost Cut Ting programs pushed the profits of Many american companies up at a breathtaking Pace for the first Quarter of the year defying the widely held Assumption that the american Economy is slowing Down. What you arc talking about is strength in corporate profits because they Are operating at close to capacity using their factories and equipment efficiently and keeping their costs Low said John Silvia vice presi Dent of Kim per financial services inc. The results read like a corporate hit Parade. Com pared with last year profits for the first Quarter for Polaroid corp. Were up 82.6 percent Sci corp., 133 percent Texas Eastern corp., 96 percent general motors corp., 42 percent Dow chemical co., 46.6 per cent Bank America corp., 152 percent and text Ron inc., 64 percent. But some analysts believe profits Are As Good As they will get for the year even if the Economy is not hit by a full fledged recession. We think profits Are peaking said Charles Clough chief investment strategist for Merrill Lynch. In the aggregate dough sees after tax corporate prof its up 11.3 percent in the first Quarter but Only 6.2 percent for the year. Some companies also May be reporting what analysts Call phantom profits where the value 9f inventories is overstated because the effect of inflation snot taken into account. On an annual basis the con Sumer Price Index Rose about 6 percent in the first Quarter. It sounds extremely counterintuitive said Gor Don Richards director of economic analysis for the National association of manufacturers. In a situation where there is rising inflation excessive inventories and an accounting system that does t take account of inflation a lot of increase in profits could be  profits grew for companies in industries where there is Strong demand allowing them to command higher prices for their goods. The steel Industry for example is running at about 93 percent of its capacity. But though shipments re main Strong margins arc being eaten away by the Ris ing Cost of materials such As Coke and Zinc. Business is better than last year but not our mar gins said Sam Saran assistant to the chairman at Inland steel industries. Costs have been rising faster than prices so there has been something of a  Inland s operating profits for its integrated steel Seg ment were up 13 percent Over the same period last year. Analysts expect the steel Industry As a whole to have a Stellar Quarter but turn in a year that is about on Par with its performance in 1988. For some companies the numbers were evidence that downsizing and discipline can pay off. Pm for example had its strongest Quarter in almost five years earning $1.55 billion. Domestic Cost cutting moves and stronger foreign sales have significantly improved the automaker s ability to withstand a Down turn a pm spokesman said. Analysts cautioned however that pm s profits reflect sales to dealers not to customers meaning that inventories on car lots Are swelling. Profits later in the year also arc expected to be affected by the Cost of incentive programs the automaker is offering to entice Consumers to buy. Other companies have improved their profit picture by taking Steps since the last recession to improve efficiency and Cut costs. Polaroid attributes its gains not Only to rising film sales but to a top to Bottom restructuring that dropped 2,000 people from its payroll in the last year. A Polaroid spokesman said profit would have been even higher if the company had not spent $38 million in the last year to fend off a hostile takeover. At Sci a booming Market has pushed up profits but the company also has been tightly controlling expenses. Similarly at to which posted a 20.6 percent increase in profits has tried to keep its costs and expenses Low. But some companies had More trouble controlling expenses. Rwjr Nabisco started to pay the Piper for costs associated with its recent $25 billion leveraged buyout the food and tobacco giant said first Quarter earnings fell 62 percent because of change of control costs which arc assumed to be related to Severance pay and pay ments to executives who arc leaving the company. Rwjr also took a loss for abandoning its smokeless cigarette. Other losers for other reasons included digital equipment corp., american express corp. And data general corp. . Service Power coming out from the economic shadows new York a hidden in the . Trade Defi Cit statistics is an area of strength Seldom revealed by traditional measurements the United states leads All other nations in the Export of sen ices. Very Little is Ever said about this simply because the usual measurements emphasize goods. It is the Sam throughout the Economy you hear about the Indus trial production Index but never about a service production Index. In spite of this the majority of the american labor Force and most of the capital is utilized in the service sector. It in t True that America is doing less manufacturing but it is True that it is becoming More service oriented. Services think of All the services you buy medi Cal Legal recreational educational transportation. Government is a service. The tax preparer is a dispenser of services. Your insurance agent and stockbroker arc scr vicars. Among the service categories arc transportation communication electric Gas and sanitary services wholesale Trade retail Trade finance insurance Andreal estate personal and social services and Public administration. Recognition of the importance of services is slow to develop however not so much among the mass of americans but among Public servants and their Agen cies. There is for example no official services production Index. That Gap in economic measurements is now being corrected not solely by government but by the coalition of service industries formed in 1982 by Independent dispensers and users of services. Public awareness is the goal. In pursuing that goal they have just issued a report on the  in services written by economists Allen Sinai and Zaharo Sofianou of the Boston company economic advisors inc. Among the find Ings by country the largest service exporter is the United states which accounted for 17.4 percent of total world service exports in 1987, followed by the United kingdom with a 12.4 percent share. The United states had a favourable service Export Trade balance of $19.7 billion in 1987. Canada Japan and Australia had service Export deficits. By country the United states is not Only the world s largest service exporter and importer but through 1987 had the world s largest service Trade sur plus. In terms of Public understanding service exports and imports Don t break Down As neatly As do Domestic services but they Are services nevertheless. Being in tangible they certainly cannot be classified As goods. Sinai and Sofianou defined them As activities involving the International Transfer of Money in return for non tangible benefits. And those benefits the first category is shipment charges including freight fees and often the insurance costs of exporting merchandise. Next is other transportation which is the Price for transporting goods for other countries. Travel is a big and rapidly growing item. Income on investments made abroad is an important item. Inter est income on foreign securities is a major item As is income from government services. In 1981, the United states had a service Export Trade balance of $42.1 billion