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Global Profits Defy The Dollar

Economic Trends


U.S. multinationals are on a roll

According to most analysts, the strong dollar represents a clear and present danger to growth of U.S. corporate earnings this year. While a rising greenback can hurt American companies at home and abroad and reduce the value of multinationals' foreign profits, economist Joseph P. Quinlan of Dean Witter Reynolds Inc. isn't worried.

Quinlan points to the latest government report on 1996 corporate receipts from foreign direct investment, a proxy for U.S. international profits. With the global economy still sluggish and the dollar headed higher, the consensus view last year was that such earnings would tank as the year progressed. In fact, they moved sideways in the second quarter and sagged 2.6% in the third.

In the fourth quarter, however, foreign direct-investment receipts surged to a record $26.2 billion--18% above the prior quarter and 20% above their year-earlier level. As a result, the annual total hit $93.5 billion, up 9.3% from 1995, which itself saw a hefty 30% advance.

By region, the strongest contributor to the profits rise last year was Latin America, where the take from Mexico doubled and receipts excluding Mexico rose by 14.2%. Meanwhile, despite the weak yen and strong dollar, direct-investment receipts from Japan jumped 16.4%. While such earnings from the European Union rose only 6% last year, both Britain and the Netherlands, two of the more robust European economies, turned in gains of around 20%.

Quinlan thinks such factors as global brand awareness and America's high-tech edge and production efficiencies are giving a leg up to U.S. companies' overseas subsidiaries. With the global economy likely to pick up steam, he predicts that foreign earnings will stay buoyant--despite the drag from a strong dollar.By GENE KORETZReturn to top

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And homeowners feel more flush

Don't look now, but inflation-adjusted prices of existing U.S. houses in 1996 outpaced overall inflation for the first time in this decade. Economist Rosanne M. Cahn of Credit Suisse First Boston Corp. points out that the median price of such houses rose by 5.2% in nominal terms and 2.2% in real terms.

Cahn believes that the 1996 "break to the upside" could mark the start of a new period of home price appreciation--a development that would bolster the economic outlook. She notes that 65% of households are homeowners, and in many cases home equity represents their largest asset. "Already," she says, "the recent firming in home prices is contributing to near-record consumer sentiment and to robust spending."By GENE KORETZReturn to top


High in Hong Kong, low in Toronto

For the first time in recent memory, reports consulting firm Runzheimer International, the priciest city for business travelers is not Tokyo. In Hong Kong, the daily cost of three meals and a first-class hotel room runs about $474. Not far behind are Tokyo and cities in the $300-$400 range, with Moscow and Buenos Aires on the high end and New York on the low end (table). The least expensive stops in Runzheimer's global 100-city survey include Bordeaux ($133) and a passel of Canadian cities such as Toronto ($155) and Montreal ($141).By GENE KORETZReturn to top

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