Corporations Begin Spending Cash, After Period Of Hoarding, Bloomberg Reports
In a sign that the pace of recovery could be quickening, corporations are starting to spend money.
After the recession prompted many companies to pad their defenses by hoarding cash, that trend seems to be shifting, Bloomberg reports, citing data it compiled from companies' recent reports. As other sectors of the economy have been recovering, the jobs market remains in poor shape. If companies invest their cash domestically, and if they use it to expand payrolls, this dismal labor situation might improve.
Companies in the S&P 500 index reduced their holdings of cash and other short-term assets by 2.4 percent during the last quarter. The total hoard fell to $2.4 trillion, from $2.46 trillion, Bloomberg says. A signal that companies may be investing in new equipment, capital spending increased $22.3 billion that quarter, to reach its highest total in two years.
If this spending trend continues, it could help create jobs for American workers. Cash-hoarding helps companies themselves but doesn't do much for the broader economy, economists say.
Just months earlier, companies were hoarding cash to a record degree. In the third quarter of 2010, U.S. corporations increased their cash holdings by 7.3 percent, according to Federal Reserve data. Relative to their short-term liabilities, companies hadn't been that flush since 1956.
The unemployment numbers reflect the drought. In January, private payrolls added a measly 36,000 jobs. The unemployment rate fell to 9 percent from 9.4 percent, as many discouraged workers dropped out of the workforce altogether, excluding themselves from the official count.
Other traditional sources of jobs have also been posting lackluster results. Small businesses, which, according to the Obama administration's estimate, create about 70 percent of American jobs, are in some cases having difficulty getting the loans that are crucial for their growth.
Many banks have eased their lending policies, a sign that the economy may be picking up. But small businesses have largely been left out, according to a recent Federal Reserve survey. Community banks, which traditionally enjoy a co-dependent relationship with small businesses, have been facing problems of their own, constituting a further impediment to job growth.