When I speak to investors considering an investment in a U.S. company, one of first things that comes to mind, other than the U.S. debt levels, is the lack of job growth in the country. A lack of job growth coupled with a high debt level and a struggling housing market makes investors leery about investing south of the border. Could all these issues be corrected over time if the U.S. could figure out how to create enough jobs? Why has the jobs situation in the United States not picked up as of yet despite all the government efforts?
In my opinion, job growth is a lagging indicator when it comes to the health of the U.S. corporate world. There are many companies doing very well at this time, reporting record earnings without having to hire new people and take on more expense. These companies have become more efficient and have learned how to streamline their business model. In cutting costs, many companies have been opened factories in parts of the world where it costs a lot less to run a business as compared to the United States or Canada. During the past decade, many companies opened facilities in places such as China, India or Indonesia where labour costs are next to nothing and products could be manufactured at a fraction of the cost than if they were built in North America. The interesting phenomenon that took place was that once one or two companies moved their plants to places in Asia, for example, others had to follow to stay competitive. Therefore, what we have seen in my opinion in the last 10 years or so is a mass exodus of business out of North America and into countries where goods can be produced cheaper.
It has taken a long time for companies to make the adjustment to these other countries and I believe it will take a long time for that business to come back. However, I think it has already begun to return. There has been an increase in some of the wages workers are demanding in these countries. China has begun to let their currency float, which has caused the yuan to rise versus the U.S. dollar. As well, due to the high cost of oil, it now costs more money to have goods shipped around the world than it did a few years ago, which also adds to the cost of doing business overseas. All these factors are starting to make corporations think about opening plants closer to home in the United States again. However, in my opinion, it will take time for this to happen.
I believe that if the U.S. government could somehow assist with the process of bringing back this business, it would help tremendously. I know there has been some discussion recently on how the U.S. government can assist with this.
So can the market continue to climb without job growth? I believe in the short term it can. We are seeing firsthand what a jobless recovery looks like. Corporations would rather grow through acquisition rather than starting a business from scratch. Many companies are flush with cash on their balance sheets and this allows them to make these acquisitions. In my opinionm it is still possible to make money in the markets during these times of higher unemployment. Companies are doing very well with the employees they have currently and continue to be efficient in their business models.
If you have any questions regarding the above article or are looking for an investment advisor to help you with your portfolio, please visit my website at www.investmentadvisorgta.com. I will be glad to speak with you.
Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities or Metro Canada.