Many U.S. companies are awash in cash – as much as US$1.19 trillion if you count up the cash holdings of 260 cash-rich companies in the S&P 500 index. What are the companies going to do with that money? It’s anyone’s guess. With capacity utilization low and consumer demand barely ticking along, these companies have little reason to build factories or stores.
One possibility is that cash-rich companies such as Caterpillar Inc., General Electric Co. and Walgreen Co. may start using their bulging wallets to acquire smaller competitors. Another is that they may increase their dividends or their share buybacks. But something has to give soon. Bloomberg says that the cash hoard of these companies has increased by US$522 billion from a year earlier.
The issue may soon become a political one. Until companies start spending, unemployment will remain high. Long-term unemployment is particularly vicious and, in the United States, it is running far higher now than at any time in the past 35 years, according to Worthwhile Canadian Initiative, the economics blog.
As always there are two ways to view this situation. The positive one is to observe that big U.S. companies have the money on hand to make massive investments if they feel the economy is heating up. If that were to happen, the good news could build on itself and the strength of the recovery might surprise people. But much depends upon consumers spending again—and that, in turn, depends upon at least some mild improvement in the employment picture.
Freelance business journalist Ian McGugan blogs for the Financial Post