Tags: Companies | Reluctant | Spend | Cash | Hoard

Companies Reluctant to Spend Their Cash Hoard

By    |   Tuesday, 05 Oct 2010 08:15 AM

U.S. corporations have amassed record cash reserves of $1.6 trillion, but they’re unwilling to put the money to work growing their businesses and hiring more workers.

Instead, they’re spending some of the money on dividends and share buybacks and saving the rest.

“They are benefiting themselves by borrowing and keeping this cash, but it is not benefiting the economy yet,” Dana Saporta, an economist at Credit Suisse, told The New York Times.

The economy is in something of a catch-22: it can’t grow much until businesses start spending, but they’re reluctant to spend until they see signs that the economy is recovering.

The Federal Reserve has cut interest rates to record lows near zero in order to get businesses and consumers going again. But businesses are taking advantage of the low rates to borrow and save rather than borrow and spend.

“They are still holding on to more cash in the same way that Noah built the ark,” David Rosenberg, chief economist at Gluskin Sheff & Associates, told The Times.

“It is very telling.”

So far companies have been able to increase their profits by cutting costs. But eventually demand will have to rise from businesses and consumers to keep the profits gravy train rolling.

Indeed analysts are trimming their earnings projections for the first time in more than a year, Bloomberg reports.

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U.S. corporations have amassed record cash reserves of $1.6 trillion, but they re unwilling to put the money to work growing their businesses and hiring more workers. Instead, they re spending some of the money on dividends and share buybacks and saving the rest. They...
Companies,Reluctant,Spend,Cash,Hoard
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2010-15-05
Tuesday, 05 Oct 2010 08:15 AM
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