Tiffany & Co. and the Weak Dollar

Ongoing weakness in the greenback (a euro is worth $1.57 at the moment, if you're keeping track) has been one of the factors optimistic economists point to as a source of support for a hobbled American economy.

Basically, even though the United States is in trouble, global growth is still healthy, and that means hefty demand for American exports, plus a reason for richer-feeling Europeans and Asians to head stateside for a vacation and a little shopping.

Thankfully, that equation still looks largely intact for the time being. But questions are popping up as to just how far a weak dollar can boost demand for U.S. products if economic growth in the rest of the world starts to cool.

For example, Friday's durable goods report showed a 0.8 percent jump, with a big 1.4 percent rise in orders for big-ticket items like refrigerators and machinery.

Nomura Securities says:

Overall, this report ranks among the more encouraging indicators of recent vintage and underscores the likely strong boost the US economy continues to derive from strong overseas demand. That is partly a function of the weak dollar and partly due to the generally stronger economies abroad. That latter, however, seems to be changing quickly with most major economies now showing signs of much slower growth.

Anecdotal evidence of such a shift is showing up in the luxury sector, where wealthy tourists flock to stores in places like New York and Los Angeles to do heavy-duty spending with their well-muscled home currencies.

Tiffany & Co., where business from its flagship stores in Manhattan has kept shares buoyant, is off from year-to-date highs of $49 a share on May 30 to around $37 today. Its shares fell 3 percent Friday after Bank of America warned in a note that Tiffany's well-heeled foreign customer base could be trailing off, especially as airlines cut back flights and start to hike prices. It cut the company to "sell" from "neutral" and also warned that sales will be hurt as macroeconomic woes spread to emerging markets, where Tiffany has a "significant dependency."

In the end, the weak dollar may not be all bad. But it's certainly not going to be enough to keep economic problems from spreading.