Corporate profits are up. Stock prices are up. So why isn’t anyone hiring?
Actually, many American companies are — just maybe not in your town. They’re hiring overseas, where sales are surging and the pipeline of orders is fat.
More than half of the 15,000 people that Caterpillar Inc. has hired this year were outside the United States. UPS also is hiring at a faster clip overseas. For both companies, sales in international markets are growing at least twice as fast as those domestically.
The trend helps to explain why U.S. unemployment remains high, 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, D.C.-based think tank, reported that American companies created 1.4 million jobs overseas this year, compared with less 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, however, those jobs have become more sophisticated — think semiconductors and software, not toys and clothes.
Many of the products being made overseas today aren’t coming back to the United States. Demand has grown dramatically this year in emerging markets like India, China and Brazil.
Meanwhile, U.S. consumer demand has been subdued. Despite a strong holiday shopping season, Americans still are spending 3 percent less than before the recession on essential items like clothing, and more than 10 percent less on jewelry, furniture, electronics and big appliances, 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 the last two months to design and manufacture equipment. The decision was 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 also noted that half of the revenue for companies in the S&P 500 in the last couple of years has come from outside the U.S.
Take the example of DuPont, known as one of the most innovative American companies of the 20th century, which now sells less than a third of its products in the U.S. In the first nine months of 2010, 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 U.S. employees 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 the company’s overseas talent is impressive. The company opened a large research facility in Hyderabad, India, in 2008.
A key factor behind the runaway international growth is the rise of the middle class in 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 Institute and formerly the World Bank’s chief economist for East Asia and the Pacific.
Entrepreneurs, whether in technology, retail or in manufacturing, today hire globally from the start. Vast.com, which powers the search engines of sites like Yahoo Travel and Aol Autos, was founded in 2005 with employees based in San Francisco and Serbia.
Harvard Business School Dean Nitin Nohria said he is worried the trend could be dangerous. In an article in the November issue of the Harvard Business Review, he stated that if U.S. businesses keep prospering while Americans are struggling, business leaders will lose legitimacy in society. He exhorted business leaders to find a way to link growth with job creation at home.
Other economists, like Columbia University’s Sachs, argue multinational corporations have no choice, especially now that the quality of the global work force has improved. Sachs points out that the U.S. is falling in most global rankings for higher education while others are rising.
“We are not fulfilling the educational needs of our young people,” says Sachs. “In a globalized world, there are serious consequences to that.”