Companies to Spend $1 Trillion in Cash Reserves, But Not on Hiring Employees
In the midst of a jobless recovery and credit-crunched financial sector, U.S. companies have been hoarding $1.9 trillion in cash. The Wall Street Journal reports that $932 billion of that money comes from just 382 non-financial companies on the S&P 500 — and that they’re about to start spending it. Should the unemployed of America rejoice? Hardly.
At a time of low interest rates, reopened credit markets and growing optimism about the economy, CEOs and their boards seem to be questioning the wisdom of sitting on all that cash. And with the S&P 500 still trading 29% below its October 2007 peak, companies are deciding that cash is their preferred currency for acquisitions—rather than shares they see as undervalued.
It’s time for a shopping spree, and they’re not in the market for employees to add value. For instance, Walgreens used the cash it saved to buy Duane Reade, creating some obvious overlaps that will likely result in more store closures.
Like a lot of U.S. companies, Walgreen cut costs during the past year, in its case halting store openings and reducing inventory. Mr. Miquelon said the moves saved the company about $2 billion in cash—freeing up money it later used in the Duane Reade deal. “We are conservative with our cash, but hoarding it right now isn’t probably the best use of it,” he said.
The Duane Reade deal cost Walgreens $618 million — and they got that money by “halting store openings” — i.e., not engaging in job creation. Other companies stored cash by cutting existing jobs, and then used the cash to pay out executive bonuses.
Alcoa Inc., for example, pegged top executives’ 2009 compensation to goals for increasing the company’s stash of cash, according to regulatory filings. The aluminum maker cut 28,000 jobs, or 32% of its work force in 2009, and reduced capital expenditures by 53%. Despite a 31% drop in revenue, Alcoa nearly doubled its cash to $1.5 billion during the year.
And their executives made their bonuses. That’s what’s important, after all. We wouldn’t want rich people to have an unemployment rate of more than 4 percent or anything.