Corporate profits are up. Stock prices are up. So why isn't anyone hiring?
Actually, many American companies are. They’re hiring overseas, where sales are surging and the pipeline of orders is fat.
More than half of the 15,000 people Caterpillar Inc. has hired this year were outside the U.S. UPS is also hiring at a faster clip overseas. For both companies, sales in international markets are growing at least twice as fast as domestically.
The trend helps explain why unemployment remains high in the United States, edging up to 9.8 percent last month, even though companies are performing well. All but 4 percent of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.
But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with fewer than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9 percent, said Robert Scott, the institute’s senior international economist.
“There’s a huge difference between what is good for American companies versus what is good for the American economy,” Scott said.
American jobs have been moving overseas for more than two decades. In recent years, though, those jobs have become more sophisticated – think semiconductors and software, not toys and clothes.
And now many of the products being made overseas aren’t coming back to the United States. Demand has grown dramatically this year in emerging markets including India, China and Brazil.
Meanwhile, consumer demand in the U.S. has been subdued. Despite a strong holiday shopping season, Americans are still spending 18 percent less than before the recession on furniture, and 10 percent less on electronics, according to MasterCard’s SpendingPulse.
“Companies will go where there are fast-growing markets and big profits,” said Jeffrey Sachs, globalization expert and economist at Columbia University. “What’s changed is that companies today are getting top talent in emerging economies, and the U.S. has to really watch out.”
With the future looking brighter overseas, companies are building there, too. Caterpillar, maker of the signature yellow bulldozers and tractors, has invested in three new plants in China in just the last two months to design and manufacture equipment. The decision is based on demand: Asia-Pacific sales soared 38 percent in the first nine months of the year, compared with 16 percent in the U.S. Caterpillar stock is up 65 percent this year.
“There is a shift in economic power that’s going on and will continue. China just became the world’s second-largest economy,” said David Wyss, chief economist at Standard & Poor’s, who notes that half the revenue for companies in the S&P 500 in recent years has come from outside the U.S.
Take the example of DuPont, which wowed the world in 1938 with nylon stockings. Known as one of the most innovative American companies of the 20th century, DuPont now sells less than one-third of its products in the U.S. In the first nine months of this year, sales to the Asia-Pacific region grew 50 percent, triple the U.S. rate. Its stock is up 47 percent this year.
DuPont’s work force reflects the shift in its growth: In a presentation on emerging markets, the company said its number of employees in the U.S. shrank by 9 percent between January 2005 and October 2009. In the same period, its work force grew 54 percent in the Asia-Pacific countries.
“We are a global player out to succeed in any geography where we participate in,” said Thomas M. Connelly, chief innovation officer at DuPont. “We want our resources close to where our customers are, to tailor products to their needs.”
While most of DuPont’s research labs are still stateside, Connelly said he’s impressed with the company’s overseas talent. The company opened a large research facility in Hyderabad, India, in 2008.
A key factor behind runaway international growth is the rise of the middle class in these emerging countries. By 2015, for the first time, the number of consumers in Asia’s middle class will equal those in Europe and North America combined.
“All of the growth over the next 10 years is happening in Asia,” said Homi Kharas, a senior fellow at the Brookings Institution and formerly the World Bank’s chief economist for East Asia and the Pacific.