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The Return of Dark Matter

Posted by: Michael Mandel on June 16

What a nice surprise this morning. I looked at the latest current account data, and discovered, lo and behold, that in the first quarter the U.S. earned more money on its foreign investments than foreigners earned on their investments in the U.S.

Not bad for the world’s biggest debtor, eh?

Especially since all of the pessimists, like Brad Setser (hi Brad!) expected the U.S. to go into permanent deficit on the investment account. Here’s what Brad had to say:

But the big gains came from foreign direct investment. The earnings of US firms abroad increased by $2.6b in the first quarter (v. q4). But even more importantly, the earnings for foreign firms fell by $3.7b. The net swing was $6.3b or so — overwhelming the US interest bill.

Dark matter (though not from Disney)?

Continued gains from the export of US intangibles (just not by Disney)?

Or bad data?

The implied return on foreign direct investment in the US remains very low — too low, in my view, to be plausible. Toyota must have had a good quarter … to me, that suggest bad data.

Hey Brad, I think there’s bad data too…I just disagree with you on where it is. I think U.S. companies are making a lot of overseas investment in intangibles—including training and business-know—which are simply not being tracked by the published data.

And you know what…I’ve got a pretty good long-term track record in finding the real story underneath the official data, going back to the boom and bust of the 1990s.

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Reader Comments


June 16, 2006 09:32 PM

So he points to one company - Toyota - as "evidence" that sweeping global data is wrong? Sure, if the data disagrees with my biases, it must be wrong!! That's my way.


June 22, 2006 10:03 AM

loikll -- i would also point to Daniel Gros' work on the difference in reported reinvested earnings, and the fact that if you believe the data, foreign firms operating in the US have made so little money over the past few years (and again in the first quarter) that they basically would have been better off investing in treasuries. In q1, even short-term treasuries did better than foreign FDI -- if you believe the data. It is pretty well known that the income data globally has a lot of problems. and the US data certainly seems to have some problems.

Michael -- i just put up a wonky data intensive post that responds to your argument. and it isn't based on toyota -- tho the Japanese may export data suggests toyota isn't doign badly, even if opts to book profits outside of the US.

Movie Guy

June 22, 2006 05:45 PM


Can you identify the url from which you extracted the Toyota profits data (as you cited on Setser's blog)?

Would it not also be appropriate to clarify that you were using Toyota's fourth quarter data to make your point? Of course, Toyota's FY is different from the U.S. FY cycle.

Mike Mandel

June 23, 2006 02:00 PM

The data on Toyota's North American operating income can be found at p.27 of

Movie Guy

June 24, 2006 01:43 PM


Thanks. Yes, I had reviewed that document including page 27. The problem is that that data (a chart) does not reflect net profits earned for Jan-Mar or Apr-June.

As such, your reference doesn't explain (to me at least) where you came up with the following statement at Setser's blog:


You might take a look at Toyota's latest earnings report. Their increase in North American operating profits in the first quarter was 24 billion yen, or roughly $200 million (compared to a year earlier)."

I have reviewed a number of Toyota's earnings documents as I do frequently for all automobile manufacturers, and I have not found one that indicates a net profit of 24 billion yen for the first quarter (whether talking about U.S. Jan-Mar or Toyota Apr-Jun quarter cycles).

There must be another source from which you pulled such net profit data for Toyota's North America operations.

Do you know what it could be?

As I stated at Setser's blog, Toyota's earnings are fine once a person reviews the correct document and accounts for Toyota's North America operations capital investment in FY 2006 of 270.3 billion yen, an increase of 116.6 billion yen over FY 2005. Depreciation rose 12.1 billion yen to 165.1 billion yen. Unit sales and revenue growth were solid.

I still can't land on the 24 billion yen net profit figure you cited.

Mike Mandel

June 26, 2006 10:50 AM

Hi MV,

I'm looking at a chart which reports North American operating profits of 75 billion yen for '05.1-3, and 99.3 billion yen for '06.1-3. The difference between those two numbers is the 24 billion yen figure that I cited.


Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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