Dow Companies are Hoarding Cash and Laying Off Workers
Many of the nation’s largest corporations have been keeping more cash on hand as the economy becomes bleaker and bleaker. Second-quarter regulatory filings showed that 24 of the Dow’s 30 companies (NYSE:DIA) increased their amount of cash and short-term investments by 18% over the year-ago period, to $256 billion.
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Caterpillar (NYSE:CAT) reported $10.7 billion in cash, three times the amount it reported in the year-earlier period, while Microsoft (NASDAQ:MSFT) reported $52 billion in cash at the end of the second quarter, up 43% from the year earlier. Johnson & Johnson (NYSE:JNJ) reported $30 billion in cash, up 57%, Coca-Cola (NYSE:KO) reported $14 billion in cash, up 38%, and Chevron (NYSE:CVX) reported $18 billion in cash, up 36%.
“Companies are being very careful with their balance sheets,” said Paul Nolte, a managing director at investment firm Dearborn Partners. Companies are worried about tightening bank lending, weakening consumer spending, and the possibility that, despite last week’s debt deal, Washington politics could continue to hold the economy hostage.
According to Bill Stone, chief investment strategist at PNC Asset Management Group, companies are “likely holding some cash due to uncertainty — with the memory of the financial crisis still fresh.” Dow 30 companies have been cutting costs by closing plants and laying off workers, resulting in stronger profits this year than last, helping them put more cash on their books.
Hoarding cash may be prudent, given recent market losses, but it’s not going to help the economy. The U.S. unemployment rate has remained above 9% for many months now, with companies laying off workers to save money when they should be hiring them to give the economic recovery a much needed boost and prevent another recession that benefits no one, especially not the companies hastening the decline.