US Companies Holding Half a Trillion Less Cash than Previously Reported
When US President Barack Obama declared last year that American companies are holding nearly $2.3 trillion on their balance sheets, many questions were raised over how that money could be put to use to stimulate the private sector economy. However, new data released by the Fed suggests that corporations are holding on to less cash on hand that previously thought.
Based on the quarterly Flow of Funds report released by the Federal Reserve yesterday, American corporations may be holding on to nearly half a trillion less cash previously reported.
Related Story: Capitalism On Strike - Why Corporations Are Hoarding Cash: Mark Spitznagel
While the total amount of cash and liquid asset holdings are still unprecedented, the data shows that the amount is still a $13 billion increase from the previous quarter, and a 16 percent increase since the recession ended in June 2009.
A decade ago, corporations had barely $1 trillion in "petty" cash.
Related Infographic: Apple's Cash Can Bailout Greece
The Fed report comes after data showed that US employers added only 69,000 jobs in May, well below forecasts. Additionally, May's unemployment rate climbed to 8.2 percent, a further sign that US economic recovery has lost its momentum.
Related Story: America's Full Recovery Is Not Yet Guaranteed: Mohamed El-Erian
Commenting on the report, the Wall Street Journal said:
One of the enduring frustrations of the U.S. economic recovery has been companies' tendency to hoard cash rather than using it to hire or invest. The issue has become a political football, with Democrats criticising companies for not spending and Republicans saying excessive regulation was deterring corporate investment.
However, a new study released this month by the National Bureau of Economic Research said "there is no evidence that poor investment opportunities, regulation, or poor governance can explain the abnormal cash holdings of US firms after the crisis."
The study entitled Multinationals and the High Cash Holdings Puzzle added:
A detailed analysis shows that the increase in cash holdings of multinational firms cannot be explained by the tax treatment of profit repatriations, that it is intrinsically linked to their R&D intensity, and that firms that become multinational do not increase their abnormal cash holdings after they become multinational.
Related Story: Paradox of Thrift: Hoarding Cash In Corporate America
n Pictures: American Companies Sitting Atop A Pile Of Cash