A majority of companies in the Standard & Poor's 500 stock index increased cash to a combined $1.18 trillion while simultaneously reducing spending, keeping a jobs recovery on hold.
Caterpillar Inc., Eaton Corp., Walgreen Co. and General Electric Co. are among 256 companies that ended last quarter with $518 billion more cash than a year earlier after cutting capital spending by 43 percent.
Economists say the dearth of investment is keeping the jobless rate at about 10 percent as the U.S. emerges from its worst recession since the 1930s.
Sandy Cutler, Eaton's chief executive officer, said in an interview yesterday:
It's not clear we are going to see the type of growth following this recession that we've seen in previous recessions... [that view] is leading people to be cautious as to their rate of reinvestment, and right in parallel with that, in terms of hiring additional employees."
One factor contributing to this reluctance to invest is almost certainly the huge political risk and the associated uncertainty. Health care, the budget, the instability in the Eurozone, uncertainty about China (e.g., its threats to dump US securities, hissy-fitting about Taiwan), and on and on make this about the most uncertain period in memory.
Far better to wait, keep your powder dry, and wait to see how things shake out before making irreversible investments.
If only for this reason, Obama and Congress should back off from their grandiose schemes. Not that that's likely to happen, which means that corporations are likely to continue to sit on cash, rather than spend it.
