Big corporations are hoarding cash. Corporate cash on hand is higher than ever! This just proves that we need to tax … oh.
in its quarterly “flow of funds” report on Thursday, the Federal Reserve sharply revised its estimates of how much cash companies are holding on their balance sheets. The bottom line: Corporations have nearly $500 billion less cash on hand than previously believed.
Perhaps more significant than the number itself, however, is how the revision affects the trend. Before the revision, the Fed showed corporations continuing to accumulate cash, with liquid assets rising nearly every quarter since the recession ended and reaching a record $2.2 trillion at the end of last year. Now, however, it appears corporate cash piles grew rapidly through 2009, then leveled off. Companies aren’t spending their cash, but they aren’t holding more of it, either.
Moreover, companies are holding a smaller share of their total assets in cash. At the end of 2009, liquid assets made up 6.3% of their corporate assets, the most since the 1960s. Under the unrevised data, that share continued to grow, topping 7% last year. But the revised data show cash has actually fallen as a share of assets, to 5.7% at the end of March, its lowest level in the recovery.
Basically, the Fed revised their methods, got better data from the IRS and wound up with figure much closer to what private firms were asserting. This resolves away one of the puzzles of our economy: the supposed unwillingness of business to invest their vast piles of cash into the economy. Now we know that those vast piles of cash are much less vast than thought.
There is still a basic unwillingness to invest. If we really were in a recovery, we would expect corporate cash to fall as companies expanded, then rise as they reaped the profits. That hasn’t happened yet.