The connection: Companies are finally using some of the $1.9 trillion in cash they've saved up during the financial crisis -- just not for filling jobs. Instead, most of the spending is going toward boosting stock prices, increasing productivity and making acquisitions. Corporate investment is forecast to increase 11 percent this year, while employment is expected to rise a meager 1.7 percent. As one Bank of America (BAC) economist told Bloomberg:
You see this huge pickup in capital spending, but there isn't a meaningful increase in employment; it's being grudgingly pulled along.Hey, big spender
Put another way, we're a nation of two economies. For a growing number of businesses, happily, life is good. Corporate profits approached a record high late last year. But that growth also requires executives to deploy their growing hoard of capital.
One popular use -- repurchasing shares. S&P 500 companies last year spent nearly $300 billion on stock buybacks, more than double the 2009 total. That's six quarters in a row big firms have increased their buybacks, with such transactions up even more in 2011. IBM laid out the most last year to repurchase stock, at $15.4 billion, followed by Microsoft (MSFT), $15.3 billion; Wal-Mart (WMT), $14.8 billion; and Exxon-Mobil (XOM), $13.1 billion.
Another growing area of spending is mergers and acquisitions. Companies this quarter have splashed out more than $700 billion on deals, the most since the financial crisis officially kicked off in September 2008. That's also only 25 percent less than the same period in 2007, before the economy caved in.
Dividends are also on the rise after many companies eased back on these payouts during the financial crisis. That includes first-time payers, such as Kohl's (KSS), and big banks, several of which the Federal Reserve recently cleared to start handing out dividends.
While corporate spending on stock buybacks, deals and dividends might enrich shareholders, it doesn't do much for the broader economy, says Slate's Anne Lowrey:
[I]t does not translate into jobs, at least not quickly. Plus, mergers often bring layoffs. In other words, corporate America isn't using its historic horde of cash in ways that will immediately benefit working America -- meaning the long slog is not looking like it will get any shorter.Consumers seem to have cottoned on to that unsettling reality. Their confidence remains fragile, even as the broader economy picks up steam. Job seekers are as aware as anyone that rising corporate productivity means that companies have less use for them than in the past.
That recipe may benefit investors, but it's a problem for the U.S. economy, especially as falling home prices threaten to undermine consumer spending. When it comes to restoring America, boosting shareholder returns is less important than putting people back to work.
Image from Flickr user GoTRISI
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