Increased Foreign Direct Investments In The U.S. Economy

The Bureau of Economic Analysis released today a report on foreign direct investments to acquire or establish U.S. businesses.

U.S foreign direct investments increased sharply in 2007 reaching $276.8 billion versus $165 billion invested during fiscal ’06. $255 billion was spent in ’07 to acquire U.S. businesses and $22 billion to establish new U.S. businesses. This marks the second largest recorded and the highest figure since 2000, when new investment outlays peaked at $335.6 billion.

U.S. businesses that were newly acquired or established by foreign direct investors employed 487,600 people, more than double the 223,400 people employed by businesses that were newly acquired or established in 2006. The total assets of newly acquired or established businesses were $455.9 billion, up from $375.8 billion in 2006.

A portion of the FDI (Foreign direct investment) spike can be objectively attributed to dollar depreciation. However, direct investment transactions as a whole seem to be tied more directly to the relative rates of economic growth between economies, as well as expected long-run rates of return and other economic factors, than to relatively short-term movements in the exchange rate of the dollar. Still, and realistically – an almost 17% greenback fiscal ’02-’07 depreciation has been partially an incentive as well as a contributing factor of increased investments.

This report certainly reinforces the idea that even though a majority of us, americans – may have lost confidence in our economy, particularly over the past 6 months based on the latest consumer confidence numbers ; foreign investors apparently haven’t.