During the dark days of the Great Recession, corporations were frozen. There was uncertainty about the economy, uncertainty about healthcare legislation, and so on. So companies sat on their hands and just let their cash flow pile up. We wrote earlier about this incredible pile of cash, which was also replicated on the consumer side of the economy as cash swelled at money market funds. The “risk off” trade was in full effect.
Consumers worked down some of their cash balances over the past year by buying bonds—wisely or unwisely depending on your forecast for interest rates. But corporations resolutely refused to budge. Until now. According to Bloomberg:
Corporate America is putting its cash hoard back to work.
In the first decline since mid-2009, Standard & Poor’s 500 companies reduced cash and short-term investments to $2.4 trillion from a record $2.46 trillion, according to data Bloomberg compiled from their most recent quarterly reports. Capital spending increased $22.3 billion, the biggest quarter- to-quarter jump since the end of 2004, to $142.8 billion, the highest level in two years.
Capital spending is now beginning to surge, and with a $2.4 trillion treasure hoard, there’s still a lot of firepower left. If businesses stay confident about the path the economy is taking, we are likely to see a mini-boom because all of the deferred spending is going to come roaring back.
It’s never clear how this will play in the market—you can watch your favorite market statistics for that—but we’re likely to see material improvement in the economy as capital finally gets put back to work.
