US Companies Have $1 Trillion, But Won't Spend It, At Least Not On Jobs

Moody’s reports that US corporations have amassed $1 trillion in cash. The document, entitled “U.S. Corporate Cash Hoard Near $1 Trillion, But Unlikely To Be Used for Expansion” explains that these firms view the money as dry powder if there is another economic downturn.

Twenty large companies hold about a third of the amount. These include Cisco (NASDAQ: CSCO), Microsoft (NASDAQ: MSFT), Oracle (NASDAQ: ORCL), and Apple (NASDAQ: AAPL). The report also points out the technology companies are the major holders of cash.

Moody’s says that the money may go toward M&A or dividends and buybacks, all of which could be seen as ways to improve shareholder returns. The money is not likely to be used to add employees or expand capacity because the firms clearly believe the economy is still moribund.

What the report does not say is that the decision by these large companies to hold cash is another reason unemployment is not likely to improve any time soon. Large firms are viewed as essential to job creation, because small and mid-sized firms have almost no access to capital. Banks are too concerned about the credit risk of companies with only modest sales. Large enterprises have been able to borrow money in the capital markets at remarkably low interest rates. Even this has not increased their appetite to expand their core operations.

The news is another example of the difference between how the Administration and some economists view the recession compared to how the average American and many CEOs do. Some call a 2% improvement in GDP an expansion, albeit a very modest one. Big companies and Americans without jobs, or the millions of Americans who are worried about their future employment, say that the economy is still in a recession which could go on for more than a year. The dynamic is fascinating when the largest corporations and the average worker both view the economy through essentially the same lenses.

Numbers may lie frequently, but in the case of the scores of balance sheets examined by Moody’s they probably do not. The corporate weather vanes still show that the headwinds are not over.

Douglas A. McIntyre