O's jobs-export economy
Wall Street economists I speak to feel pretty confi dent that -- for all the news about housing prices falling, gas prices rising and the stock market zig-zagging and a possible downgrade of US -- the chances of a "double dip" recession are pretty remote. After all, companies are still profitable two years after the financial collapse, and judging by the job listings even at banking basket-case Citigroup, people are finding work on Wall Street.
But that doesn't mean the broader economy, defined by how many people are working, is getting noticeably better anytime soon. In fact, don't expect any major hiring sprees by corporate America in the next two years -- and, if policies don't change in Washington, possibly not in our lifetimes.
The problem for the average American worker: Businesses have learned to make money by cutting costs (i.e., jobs) or relocating to China and India. And it's not merely that it's cheaper to operate overseas; a huge part of the problem is the fear that it's going to keep getting more expensive to hire here.
Both small-business owners, and analysts who cover these companies tell me that many American businesses would like to stay here, but they see no letup in sight in the endless stream of taxes and regulations coming from an administration most of them consider anti-business.
And now the weakness of the Republican presidential field raises the chances for President Obama's re-election in 2012 -- and even more Washington-
imposed woes.
Veteran analyst Peter Sidoti covers the stocks of small corporations -- those that have traditionally been the engines of hiring and growth, particularly coming out of a recession. He points to the experience of AT Cross Co., the manufacturer of the famous Cross pen.
Sidoti, who covers Cross' stock, notes that the company shut down one of its manufacturing plants in Rhode Island a few years back, and set up shop in China. "The move seemed so unnecessary," he says. "The plant was small and it costs money to relocate to China." That is, until Sidoti began adding up the costs of staying in a high-tax state like Rhode Island: Not just federal ones, but state and local, too.
And those problems have only been compounded now: ObamaCare's on track to add serious costs; the administration may yet give us some crazy energy plan; the president's reaffirmed his desire to reverse the Bush-era tax rates, which would amount to one of the largest tax-hikes in history.
Sidoti's actually an example of the problem. With federal, state and city taxes, Sidoti & Co. gets hammered with around a 75 percent tax rate. With his health-care costs rising 10 percent alone this year, he estimates that the first $1 million his company earns goes toward paying those costs.
"That's why I'm looking to open an office in Austin, Texas, where taxes are lower," he tells me.
He adds: "Washington has to decide what they want the country's future to be. Is it going to be Detroit, which did nothing to help business, so people and capital have fled, or will it be Texas, which at least for the moment is attracting people and capital because taxes are low?"
If there's good news in any of this, it's that more businesses can recover -- it's easier than ever to move a factory to China or the Philippines and slash your operating costs. Stocks of these companies will rise as they become more efficient. Take a look at a one-year stock chart of Cross pen and you'll see what I'm saying.
The bad news is that not everyone in this country is wealthy enough to own stocks or can afford to move to China for a factory job.
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