Many companies cautious about spending

A fistful of money

TEXT OF STORY

Kai Ryssdal: You can expect lots of good corporate earnings numbers in the next couple of weeks. Not all of them, though, because of better sales. There's been cost-cutting and layoffs. And companies getting more out of the employees who are still working. And one other thing, too: Corporate America is sitting on piles of cash.

Just today, Goldman Sachs cut its stock rating on Microsoft. A Goldman analyst said if it wants people to invest, the software company ought to bump up its dividend and start giving money back to shareholders. There are, though, other ways companies can get rid of some of that cash -- like hiring.

Marketplace's Jeremy Hobson reports from New York.


Jeremy Hobson: It's not just Microsoft that's hoarding cash; all the big companies are doing it.

Just ask Howard Silverblatt, a senior analyst at Standard & Poors.

Howard Silverblatt: Six months ago, they set another record, three months ago, they set another record, and they just did it again. Sixty-seven weeks of net income sitting in the bank, not earning a lot.

That's because companies remember what it's like not to have access to cash. And they're not going to spend what they have, he says, until there's plenty of demand for their products.

Silverblatt: Before we get hiring, they're going to have to see their actual sales increase, so they know what they're going to produce, they'll be able to sell. Unfortunately part of the cycle, consumers are not going to spend until they're sure that they have secure jobs.

And even President Obama doesn't expect consumers to break the cycle. He said today that a sharp consumer-driven recovery is unlikely, because people -- like companies -- would rather build up their rainy day funds than spend. So, if we're all doing the same thing, why are big companies expecting such hot earnings this quarter?

I asked Dana Saporta, an economist at Credit Suisse.

Dana Saporta: Companies have done quite well to date, because they've been cutting back on payrolls and saving money. But unless demand picks up, they will be in for hard times as well.

In other words: they can't cost-cut their way to profit. At some point, she says, companies will have to start expanding to survive. When will that be? Saporta says it's probably several quarterly earnings seasons away.

In New York, I'm Jeremy Hobson for Marketplace.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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