World Briefing

Bailout from Abroad

Thank heavens for big spenders overseas. In the past decade, domestic profits of U.S. companies have increased only 19%, while those of their foreign subsidiaries have risen 173%. From the second quarter of 2001 to the first quarter of this year, domestic earnings fell 11%, while foreign earnings rose 7%. Overseas profits as a percentage of total earnings have nearly doubled over the past decade, to 39% from 22%. A weak dollar, which boosts the value of profits booked in foreign currencies, has helped recent offshore performance. But, says Prudential Securities chief economist Richard Rippe, these numbers show "the resourcefulness and capability" of U.S. firms in foreign markets, and without them, the effects of the domestic recession would have been more severe.

FOREIGN PROFITS UP
Earnings contributed by overseas subsidiaries have steadily increased over the past 10 years

U.S. overseas subsidiary earnings as % of total earnings

January 1993 22.0%
April 2003 39.4%

Sources: Bureau of Economic Analysis, Prudential Financial Research