Many major U.S. companies are making big plans to expand overseas even as some of them announce new layoffs at home, and there’s a chilling reason why: They’re beginning to give up on the American consumer as a source of future growth.

For years, U.S. companies went off shore to get cheaper labor and lower manufacturing costs for products to be sold to Americans. Now, as the nation’s economy stalls and personal incomes stagnate, they see consumers in Asia and Latin America as offering brighter prospects for future sales and profits.

In effect, as many corporate executives look ahead, the United States has a diminishing place in their thinking.

The nation’s tax laws reinforce the pattern. American companies have piled up mountains of profits overseas, but they must pay very high taxes if they bring the money home. So instead of investing back home, they are more apt to put the money into overseas expansion, adding jobs there.


That shifting focus is one reason new job growth here has slowed to a trickle in recent months. And without more jobs to propel incomes and consumer spending, the U.S. economy is looking increasingly vulnerable to a prolonged period of sluggishness, if not outright recession.

Big multinational firms are adding droves of sales and marketing employees in countries such as China, India and Brazil — even as many cut back or hold the line on employment and other spending at home.

Newell Rubbermaid Inc., one of the biggest marketers of children’s car seats, for example, is expanding in Brazil instead of the United States. While young Americans are putting off having children, in part because of the poor economy, Brazil’s middle class is growing, and many more young couples are starting families.

So more Brazilians have the money to buy new, upscale car seats while more U.S. parents are making do with cheaper brands or hand-me-downs.


It also helps Brazil that it recently mandated car seats for infants, says David Doolittle, a spokesman for Newell, which sells Graco baby gear, Parker pens and Sharpie markers. While Newell’s employment and operations in the U.S. are stable, he said, “We’re just not doing a lot of new investment. We’re putting it all behind emerging countries.”

The U.S. market remains huge, but it’s not growing significantly and prospects — reflected in the downgrading of the nation’s debt Friday — are similar for the next few years.

In the long term, developing economies such as Brazil’s are projected to grow 2 to 2½ times faster than those in the U.S. and other industrialized nations. That difference could be even greater over the next decade, given the deep budget cuts and austerity measures taking hold in the debt-burdened U.S. and Europe.

A downturn in the rich countries, of course, would dampen growth around the world and could lead to a new global recession. Gripped by such worries, stock markets have plunged in recent days. That could motivate companies to pull back further in the U.S. and look even harder at investing overseas to protect their profit margins.


Major layoff announcements by big corporations already have begun to rise again in the U.S., hitting a 16-month high of 66,414 jobs to be shed in coming months, according to the outplacement firm Challenger, Gray & Christmas Inc.

Strikingly, the largest layoff actions last month were accompanied by disclosures that the same companies planned to ramp up their operations — including hiring — in emerging economies.

Merck & Co. Inc., the New Jersey pharmaceutical giant, announced plans to eliminate as many as 13,000 positions by 2015, up to 40% of them in the U.S. The rest will come in Europe and other countries, but not in fast-growing markets such as China and India — where the drug maker is seeing huge new opportunities for its cholesterol, arthritis and diabetes medications.

Like many major American companies, Merck’s business overseas now outstrips its U.S. numbers. Its total sales reached $12.2 billion in the second quarter, with international sales accounting for the bulk of it and growing at more than triple the pace of the domestic side.


Talk of cutting back Medicare and other government spending on healthcare is almost certain to increase that imbalance — and the focus on overseas investment by companies such as Merck.

Merck spokesman Steven Campanini insisted that the company was continuing to invest in the U.S., citing as an example a large vaccine plant in North Carolina that’s expected to open in 2013. But he noted that emerging economies, with their faster growth and unmet medical needs, were expected to account for 90% of the industry’s future growth.

“Strategically, the anticipated layoffs of the corporate sector are evidence they already recognize that the financial and human capital will have to be where the demand is,” said Patrick O’Keefe, economic research director at accounting and advisory firm J.H. Cohn.

The new domestic-market cutbacks at large companies are all the more significant now because small businesses with fewer than 100 employees, which typically have led job growth out of recessions, are doing relatively little hiring in the face of weak sales and credit constraints.


After crowing in early 2010 that it was adding 2,000 to 3,000 jobs in the next several quarters, Cisco Systems Inc. announced plans last month to eliminate 6,500 jobs.

The San Jose company wouldn’t discuss details of the restructuring, but analysts said the reversal was driven by missteps in expanding into certain consumer lines and a tech marketplace in which more and more computers, smart phones and other products are being bought outside the U.S.

“That’s just the cold, hard reality of where the growth will be over the next decade,” said Brent Bracelin, a technology analyst at Pacific Crest Securities in Portland, Ore.

Other companies, responding to this reality, are reorganizing to capitalize in places where consumer purchasing power is expanding. Kraft Foods Inc. said last week that it was spinning off its North American grocery business from its global snacks group to put a sharper focus on “fast-growing developing markets.”


Analysts reckon that such corporate repositioning will be played out over many years, just as American off-shoring of production to Asia and Latin America spanned decades.

O’Keefe sees this transition as equally epochal, reflecting the shift in the balance of power in the global economy and in what he believes is an underlying reduction in the long-term U.S. growth potential.

Simply put, he said, “Our middle class is constrained.”

Some companies and business coalitions have called for a tax holiday on repatriated profits, but Wells Fargo senior economist Mark Vitner doubts that will do much to divert activity to the U.S.


“If your business is growing overseas, why do you need to repatriate it?” he asked. “You want to invest it where it’s growing.”

The outlook for American consumption, which accounts for 70% of the U.S. economy, has dimmed considerably in recent weeks.

Consumers are eating at home more often, putting off needed home repairs, trading down on personal care and other services and hanging on to their clanking washing machines and cars longer than they might otherwise.

Some consumers such as Dean Wedgwood, a 54-year-old who lives in a Denver suburb, are learning to go without their own cars altogether. Last winter Wedgwood banged up his Mercedes sedan, but instead of getting a new car, he used the insurance proceeds to pay his medical bills.


Eventually, Wedgwood hopes to buy a car. “I don’t know when,” said the former self-employed online publisher who now is looking for work.

Consumer spending could take a further hit next year: About 3.7 million unemployed face the loss of extended jobless benefits. Also set to expire at year’s end is a Social Security payroll tax cut that is now putting, on average, an extra $700 a year in workers’ pockets.

The one bright spot in consumer purchasing has been in the luxury market, but a falling stock market is likely to take a big bite out of that too.

“Now there are more doubts about how temporary the slowdown is” in American consumer spending and economic activity, said Lynn Reaser, chief economist at Point Loma Nazarene University.


“Instead of positioning for demand in the U.S.,” she said, “larger companies will shift more resources abroad and small businesses will be staying in the sidelines. ... Pent-up demand isn’t enough.”

don.lee@latimes.com