WASHINGTON—US companies are hoarding nearly one trillion dollars of cash that they are unlikely to use for expansion amid a muddled outlook on economic recovery, rating agency Moody’s said Wednesday.
“Companies will hesitate to spend their cash hoards on expansion until there is greater certainty about the direction of the US economy,” said Steven Oman, senior vice president at Moody’s Investor Service.
A new Moody’s study of corporate cash balances found that US companies, excluding financial firms, had about 943 billion dollars of cash and short-term investments on their balance sheets at mid-year 2010. The 20 most cash-rich companies had a combined 346 billion dollars.
By comparison, Moody’s said, at the end of 2008, companies had 775 billion dollars of cash.
The economy contracted 6.8 percent in the fourth quarter that year; the worst recession since the Great Depression officially ended in June 2009.
The rating agency noted the companies’ apprehension in the face of the weak recovery which slowed to a 1.7 percent growth in economic output in the second quarter of 2010 and has left persistently high unemployment.
“Given low demand and capacity utilization within certain industries, companies are wary of investing their cash in new capacity and adding workers, thereby doing little to abbreviate the jobless recovery,” it said.
Moody’s forecast that as the economy stabilizes, companies most likely would use their cash for share repurchases and acquisitions.
The US Federal Reserve is widely expected to announce next week it will resume major long-term asset purchases, known as quantitative easing, to support the flagging recovery. –Agence France-Presse
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