Don’t Give Up on the U.S. Just Yet

Yes, things look pretty glum when you take a look around the U.S. today (not to mention, the world). Unemployment is hovering around 9.2%, the housing market is still near the depths of its slump, the politicians can’t or won’t play nicely in the sandbox together, as of 10/10/11 the S&P 500 was down 18% from its high on April 29th, and so far no one can determine whether or not “Operation Twist” is going to do anything other than confuse us. It is easy to see how there is so much pessimism out there.

However, one could also argue that now is not the time to give up on the U.S. Believe it or not there are some bright spots out there that just might suggest the good ol’ U. S. of A. can make a comeback in the next decade. Let’s look at several factors.

Corporate America has not been this lean in a long time. Unfortunately for workers, bad economic times cause businesses to lay off employees and figure out how to provide their goods and services with less man power. While this is bad for our employment figures, it is actually good for corporate profits. If Company ABC can make just as many widgets with 20% less labor (overhead) then they can either sell the widgets for less or they can make a greater profit, or the best of both worlds, they sell them for less and still make a greater profit. Furthermore, corporate America is sitting on in excess of $1.2trillion in cash. At some point companies are going to have to spend that cash. They will either give it back to shareholders in the form of higher dividends (such as Intel announced earlier this year) or share buyback programs (like Dollar Tree just announced they would be buying back $1.5billion of its common shares) both of which ultimately give shareholders more wealth and/or value in their shares. Still, another choice is to invest this excess cash in new R&D, facilities, or technology. All of these investments can only mean good things for our economy (as long as that occurs in the U.S., and we’ll get to that later) as more people will be put back to work either; constructing new facilities, working in the new facilities, or inventing new technology to propel companies forward.

Speaking of technology, many people say we are no longer a manufacturing country, but have you taken a look at how many people are employed at some of the largest technology companies out there today? Google announced in January that it will hire 6,200 additional workers this year and may surpass 31,000 total employees by year end. Most of these current employees work in the U.S.. Facebook has 2,000+ employees, with again, the majority of those working in the U.S. The whole social media revolution whether you understand it or not, is creating jobs and it is doing so on a daily basis. According to an article in ComputerWorld in June of 2009, the Internet economy at that time had created 1.2M jobs. Spinoffs funded from all the major technology players such as Microsoft, Apple, Intel, etc. also provide new jobs all the time. Let’s not forget that at one time both Amazon and Ebay were start-ups that as of 2010 collectively employed over 51,000 employees.

Finally, many people feel that China is taking over the world (or at least all of our jobs) and that there is no hope in sight for domestic manufacturing jobs. But, that might not be the case in the next decade as China’s wages rise, their workforce diminishes, and their quality controls suffer, all of which leads to higher costs for us to outsource to China. China spent two decades building itself to be the manufacturing powerhouse that it is today and with a population of close to 1.3 billion people it did so by throwing as many workers at a job as needed for the equivalent U.S. wages of pennies. That worked well for the several decades it took to become the low cost outsourcing answer to manufacturing solutions, but it might not be the case for too much longer. First of all, the birthrate in China is declining due to strict family planning policies. Factory workers ages 16-24 will drop by one third over the next twelve years (as cited by an article entitled “Average Chinese Worker’s Life” on 7/13/10 for the Association for Asian Research). At some point, the sheer number of workers will no longer be the viable source it once was for China. Furthermore, the factory workers today have a much different view of the world than their parents did. Thanks to technology like cell phones and e-mails workers can now compare working conditions in different factories which can encourage them to look for better paying jobs or better working conditions. This means that companies are having to increase wages in order to keep their workers which in turn means higher costs for production. An article appearing in the Economist on July 29, 2010 cited a 17% increase in wages in China from 2009 to 2010. One can reason that this will only continue to be the case as the population growth either stalls or declines and workers have more power to demand higher wages. With the rise in the value of the yuan, U.S. products produced in China become more expensive for foreign markets to import and thus become less competitive. Additionally, quality control issues have also recently been a reason for some companies to relocate back to the U.S.. In some instances even if production costs are higher in the U.S. these costs are offset by a higher volume of quality products which in turn means less lost inventory. Several weeks ago there was an article in the WSJ showcasing a furniture manufacturer that will be building a new factory in North Carolina which it estimates will employ roughly 135 workers. The article also mentioned that Ford has announced it would start building some auto parts in the U.S. that it previously had been outsourcing to China. Of course there is India that is more than happy to become the next biggest manufacturing country but they too have their issues among them their labor laws which make it incredibly cumbersome to employ more than 100 workers at a company.

No doubt there are many issues that need to be addressed to get America back to work and back to expansion. Not the least of which is taxes. Until corporate America knows what type of tax hurdles it will face it is not likely to start their investments and hiring sprees. Nor will the glut of housing be solved overnight especially with the financial institutions’ lending requirements. And, perhaps our biggest obstacle is to figure out how politicians can work together to pass legislation that helps stimulate business and not hinder it. Despite all of this, one can make the argument that now is not the time to give up on America. There are positive signs out there, and just like we did after the Great Depression, we can come back and be stronger than ever.