Wednesday, June 17, 2009

Foreign Investment in U.S Businesses Increased to $260B in 2008, Mostly in Manufacturing

According to data released earlier this month by the BEA, foreign investors pumped $260.4 billion into the U.S. economy in 2008 to acquire U.S. businesses ($242.8 billion) or to establish new U.S. businesses ($17.6 billion), the highest level of foreign investment in eight years, and a 3% increase from 2007. This investment activity in the U.S. by foreign investors represents almost a 5X increase since 2002, when FDI was only $54.5 billion (see chart above, click to enlarge).

The BEA reported that:

Among major industries, there was a substantial increase in outlays in manufacturing, which accounted for the majority of the spending by investors in 2008. Outlays were also large in information and in finance. Outlays in real estate fell sharply. Outlays increased from investors in Europe, Latin America and Other Western Hemisphere and in the Asia and Pacific region. As in previous years, the largest share of outlays was from European investors. Outlays by investors from Canada and the Middle East fell.

In 2008, U.S. businesses that were newly acquired or established by foreign direct investors had 368,500 employees, compared with 496,600 employees in 2007. Employment at newly acquired or established firms was largest in manufacturing (146,600) followed by finance (except depository institutions) and insurance (95,700).

Bottom Line: Americans might have lost confidence in their economy over the last few years, but foreign investors apparently haven't, and in fact, are increasingly bullish about the U.S. economy and its businesses. Despite subprime mortgage problems, a housing slump, a recession compared frequently to the Great Depression, an auto sector on government life support, and a manufacturing industry in serious decline, foreigners invested more than a quarter trillion dollars in the U.S. in 2008, mostly in the ailing American manufacturing sector.

10 Comments:

At 6/17/2009 7:09 PM, Anonymous Benjamin said...

You know, Anthony Downs wrote an interesting book, something like "A Niagara of Capital" was the title.
Before the global meltdown, there appeared to be a global capital glut, thanks to high savings rates in Asia and Europe (and, I contend, pension funds and insurance companies in the U.S.)
I contend this glut led to capital searching for return, and accepting more risk to get it. Due diligence became passe (the total failure of the credit-rating agencies added to the picture).
So bust.
I suspect that once the ball gets rolling again, we will find a healthy supply of capital looking for a home, thanks again to global savings rates.
Things may reflate quickly, if we are lucky. In prior recessions/depressions, there was not such a torrent of capital looking for a home.
Anyway, it is a positive thought.
I wonder if the Fed can run the presses even harder, to keep the dollar cheap, thus making USA assets look cheap and attractive--bringing capital here. Some inflation would also "pay off' the still-heavy debt loads our economy suffers.

 
At 6/17/2009 7:12 PM, Anonymous art said...

"Bottom Line: Americans might have lost confidence in their economy over the last few years, but foreign investors apparently haven't. "

WRONG!!!!

in any economy, savings must equal investment. since there is no savings in the u.s. economy, there can be no investment. that leaves only foreigners to make the investments necessary to bring back/maintain manufacturing.

this is another, as yet, unseen effect of the budget and trade deficits - that either foreigners will take over the economy or the economy will stagnate (and probably decline) due to lack of investment.

the ignorance of fundamental economics in the u.s. is staggering.

where are all the supposed brain wizards in washington????

 
At 6/17/2009 7:29 PM, Blogger 1 said...

Its only anecdotal and its only 2nd hand but someone I know who does lots of engineering work in Japan say the Japanese he knows and the talk at some of the keiretsus he deals with is that the US isn't the place to invest money right now...

Two Trillion Tons - Sung by the Ghost of Tennessee Ernie Ford

 
At 6/17/2009 7:39 PM, Anonymous Benjamin said...

1-
The Japanese were huge buyers in the 1980s, especially trophy real estate. They got burned to toast. It'll be another generation before they come back.
If the dollar gets cheap enough, maybe others will think the risk is worth it.
We probably won't see any German auto companies buy any more American auto companies for a while. Just a guess.

 
At 6/17/2009 8:04 PM, Blogger 1 said...

Hello Benjamin...

"They got burned to toast. It'll be another generation before they come back"...

Yeah, I remember when they bought up Hawaii in the late seventies and early eighties...

In fact in '81 I was in a Sands on Hilo that was owned by Americans when I checked in and a week later when I checked out it was in Japanese hands...

None the less the sector I'm talking about is heavy construction of massive projects like damns and bridges...

Some of the Japanese are having qualms about accepting the American dollar for work performed...

 
At 6/17/2009 8:17 PM, Anonymous Anonymous said...

Do you think that foreigners might want to pick up some free dole, you libertarian twits?

Here's Perry pumping the Anheuser-Busch stock price, which accounted for 20% of 2008 FDI, twits.

 
At 6/17/2009 10:40 PM, Blogger Benjamin said...

I resemble that insinuendo.

 
At 6/17/2009 11:11 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 6/18/2009 2:27 PM, Blogger Patrick said...

Robert,
Thanks for sharing the quarterly info. I was looking for that, but couldn't find it. I was thinking the same thing as you, that it would have gone down quite a bit in Q3 and Q4. Perhaps the spike in Q4 was due to perceived value as well as a hedge against anticipated dollar weakness. After all a weak dollar would benefit domestic manufacturing over foreign. Maybe foreign manufacturing saw it as a way to get in cheap if that were to happen.

 
At 6/18/2009 3:22 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 

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