Corporations Flush With Cash Not Hiring, Buying Own Stock Instead
October 7, 2010
(ChattahBox Business News)—With the recession officially over, the economy is finally showing positive growth, albeit slowly, but the unemployment rate still hovers near 10 percent, weakening consumer demand and confidence. So, where are the jobs? They all can’t be overseas. U.S. corporations have enjoyed a healthy rebound in profits and are holding on to record amounts of cash, but they are not hiring workers, or even investing in research and development. Why? Good question. The corporations insist they are scared to invest in new workers, because of the uncertainty in the fragile economy. Whether you take that explanation at face value, is another issue. So, what are the corporations supposed to do with this pesky little problem of having piles and piles of cash and no place to spend it? They have decided to make record purchases of their own stock. It’s a win, win. Their balance sheets improve and stock prices rise, but Americans lose.
The Washington Post reports today on the unprecedented purchases of company stock.
“For months, companies have been sitting on the sidelines with record piles of cash, too nervous to spend. Now they’re starting to deploy some of that money – not to hire workers or build factories, but to prop up their share prices.”
“Sitting on these unprecedented levels of cash, U.S. companies are buying back their own stock in droves. So far this year, firms have announced they will purchase $273 billion of their own shares, more than five times as much compared with this time last year, according to Birinyi Associates, a stock market research firm. But the rise in buybacks signals that many companies are still hesitant to spend their cash on the job-generating activities that could produce economic growth.”
After the greed and excesses of Wall Street nearly destroyed our economy, requiring taxpayer-funded government bailouts, major corporations are hoarding their cash instead of hiring American workers. It’s obscene.