Global Profits Defy The Dollar

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.

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