Tags: US | Firms | Spending | Cash | Hoard

US Firms Start Spending Their Cash Hoard

By    |   Friday, 06 Aug 2010 08:17 AM

Until recently, U.S. companies have been amassing huge cash reserves, to the tune of $1.24 trillion, feeling very cautious about spending in the wake of the financial crisis.

But now many of them are starting to loosen the purse strings.

Corporate capital spending accounted for much of the 2.4 percent gain in second quarter GDP. Indeed, business investment expenditures surged at a 17 percent rate, the largest increase since the first quarter of 2006.

“There’s a lot of pressure on companies to ramp up the revenue line,” John Carey, a money manager at Pioneer Investment Management, told Bloomberg.

“They have pretty much done everything they can on the cost-cutting side so they’ve got to spend more in order to sell more.”

Caterpillar, the world’s biggest construction equipment manufacturer, is spending $820 million to buy the transportation company Electro-Motive Diesel and $700 million to develop mining trucks and hydraulic shovels.

“Shareholders don’t typically like companies that sit on a lot of cash, so we’ll put that to work,” Caterpillar CEO Doug Oberhelman told Bloomberg.

But not everyone thinks the investment surge will last.

"Businesses are making up for lost ground right now,” Joel Naroff of Naroff Economic Advisors, told Reuters.

But, “If they are looking at a more sluggish expansion, I think they will slow their investment activity."

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Until recently, U.S. companies have been amassing huge cash reserves, to the tune of $1.24 trillion, feeling very cautious about spending in the wake of the financial crisis. But now many of them are starting to loosen the purse strings. Corporate capital spending...
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2010-17-06
Friday, 06 Aug 2010 08:17 AM
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