How stronger dollar might be drag on US GDP

Dollar index, which presents dollar value against a basket of currencies is now trading at 99.6, just shy of its recent high around 100 mark.

Policymakers at FED have now been vocal against the strength of dollar, saying it might be hindrance to domestic growth and drag on US trade balance.

US GDP -

• US GDP in fourth quarter was approximately $17.7 trillion. GDP can be divided into four major components. Personal Consumption expenditure, Business Investment, Government Spending, Net Exports.
  
  
• 70% of what is being produced by US gets consumed domestically. In 2014, Personal consumption expenditure accounted for $12 trillion worth of goods and services, among which goods accounted for $4 trillion and services for the rest $8 trillion.
  
  
• Historically speaking trade balance has been a drag on US economy as US exported lots of petroleum products from Canada and Gulf countries.

Effect of Dollar -

• Talking of trade stronger dollar poses challenge for the domestic producers as they will have to compete with foreign producers. Major challenges will be faced from Europe in this regard. UK's strong services sector will pose challenge US based farms. However major challenge will be faced on Goods frontier.
  
  
• Shale oil boom changed scenario of oil industry, as domestic refiners started relying on domestic production more. However that is again under threat, as stronger dollar makes production from Canada and Gulf of Mexico cheaper in comparison. International oil producers get paid in dollar but their cost runs in cheaper domestic currency.

Stronger competition and lack of growth might as well lead to lower business investments.