Nonfinancial Companies In The US Sitting On Nearly $2 Trillion in Cash
According to the Wall Street Journal, nonfinancial companies in Corporate America are currently sitting on mountains of cash and liquid assets, despite the fact that this mix of cash and assets is generating a very meager rate of return.
According to the WSJ, nonfinancial companies in the United States were sitting on $1.93 trillion in cash and liquid assets as of the end of Q3, which is up substantially from the Q2 figure of $1.8 trillion. The WSJ notes that this $1.93 trillion in cash and cash equivalents makes up a full 7.4% of the companies' total assets, which is the highest such figure posted since 1959.
Corporate America is in a "why don't you go first?" type of holding pattern right now, and for good reason. With the national unemployment rate near 10% and the US economy bogged down in an economic quagmire, companies are hesitant to deploy their cash for the purposes of expansion (hiring new workers, building new plants, etc).
So instead, many US companies are doing what US consumers have been doing since the start of the "Great Recession" - saving their cash and paying down debt. The US consumer has adopted a frugal mindset over the past three years, and the US corporation has done the same as well (well, except when it comes to executive compensation packages).
Those companies who have a handle on their debt situations and are staring at an ever-increasing pile of cash in their accounts are taking things one step further and engaging in stock buybacks and issuing dividends. In years past, companies with large cash balances could invest in ultra-liquid assets and generate a somewhat decent level of return, but those days are over thanks to rock bottom interest rates.
The bad news? Corporate America is being stingy with their money right now, and this is translating into tepid growth for the economy.
The good news? That cash will EVENTUALLY be deployed one day once Corporate America is convinced that a meaningful recovery is finally underway.
Source: WSJ.com - Companies Cling to Cash
Filed under: General Knowledge
2 COMMENTS - What Say You?
Comment by Animal on December 10, 2010 @ 12:37 pm
Great points, but you missed one other important reason why corporations are not expanding. Production.
Until we bring back manufacturing to the U.S economy there is no reason to hire new employees or to build new plants.
Comment by Jack on December 13, 2010 @ 11:48 pm
"The good news? That cash will EVENTUALLY be deployed one day once Corporate America is convinced that a meaningful recovery is finally underway." - Not so fast.
Most of that cash will be to create jobs in the third world.
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