Companies like Microsoft are raising billions of dollars by issuing bonds at ultra-low interest rates, but few of them are actually spending the money on new factories, equipment or jobs. Instead, they are stockpiling the cash until the economy improves.
The development presents something of a chicken-and-egg situation: Corporations keep saving, waiting for the economy to perk up — but the economy is unlikely to perk up if corporations keep saving.
This situation underscores the limits of Washington policy makers’ power to stimulate the economy. The Federal Reserve has held official interest rates near zero for almost two years, which allows corporations to sell bonds with only slightly higher returns — even below 1 percent. But most companies are not doing what the easy monetary policy was intended to get them to do: invest and create jobs.
The Fed’s low rates have in fact hurt many Americans, especially retirees whose incomes from savings have fallen substantially. Big companies like Johnson & Johnson, PepsiCo and I.B.M. seem to have been among the major beneficiaries.
“They are benefiting themselves by borrowing and keeping this cash, but it is not benefiting the economy yet,” said Dana Saporta, an economist at Credit Suisse in New York.
American corporations have been saving more money since the financial collapse of 2008. But a recent rush of blue-chip bond offerings — including a $4.75 billion deal last month by Microsoft, one of the richest companies in the world — has put even more money in their coffers.
Corporations now sit atop a combined $1.6 trillion of cash, a figure equal to slightly more than 6 percent of their total assets. In the first quarter of this year it was 6.2 percent of assets, the highest level since 1964, when it was 6.4 percent.
When will they start spending that money — in particular, by hiring?
That is part of what has become the great question of this long, jobless recovery: When will corporate America start to feel confident enough to put its cash to work, building factories and putting some of the nation’s 14.9 million unemployed to work?
Businesses are holding on to their protective cash cushions, worried perhaps that the economy could slip back into recession or at least grow too lethargically to make an investment worthwhile.
The nation’s corporations will be strong, well capitalized and ready to act aggressively when executives finally decide it is time to expand their businesses.
After running up sharply every quarter since mid-2008, the ratio of cash holdings to assets by corporations fell slightly for the first time in the second quarter of this year.
Although investment in factories and plants still languishes, companies have spent some money on investment in new equipment and software. That spending grew at an annualized rate of more than 20 percent in the first two quarters of this year.
But economists say that such investment is still below its peak before the financial crisis.
In addition, many of the new machines and computers may be replacing older machines companies put off retiring in the recession. Businesses are playing catch-up, and little expansion is occurring.
“They may actually be using this new investment to be more efficient and cut jobs,” said Michael Gapen, an economist at Barclays Capital. “The mix of signals right now is still telling corporations to sit tight and wait.”
Mr. Gapen said those signals included the direction of the housing market, the outcome of midterm election, the effects on the economy as the fiscal stimulus wears off and any changes in tax policy.
They are deciding, “Why don’t we just wait until the first quarter of next year?” he said.
The cheap money may be having yet another effect unintended by policy makers eager to cut the nation’s 9.6 percent unemployment rate. Several of the corporations borrowing billions on bond markets are using the money to put their own financial house in order rather than to create jobs.
Microsoft said it was using some of its money to buy back shares, other companies are locking in longer-term borrowing, and some of the new borrowing is financing an increase in mergers and acquisitions.
All of this may enrich the corporations’ shareholders and cut company costs in the long run, but it does not necessarily lead to more jobs and it does not represent the big investments in growth that could fuel a sharp economic recovery for everyone.
“They are still holding on to more cash in the same way that Noah built the ark,” said David Rosenberg, chief economist at Gluskin Sheff & Associates in Toronto. “It is very telling.”
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