Sittin’ on Cash

What do you do when you are a CEO of a big company, have cut operating costs to the bone, generated a pile of cash as a result but don’t believe there are enough folks out there to buy what you make? What do you do next? When do you make the “let’s hire some more workers and make more products” decision? Do you take the first step? Wait for your competitors to take the risk first and then react as fast as you can? When? What signs are you looking for? Multiply that conundrum times thousands of employers and you define this lingering recession. Foreclosures increased 38% last quarter, retail sales dropped half a percent in June, credit is still tight for consumers and small and mid-market companies, and the only real heat in this economy are the financial sector and the heat waves generating sweat under a burning sun.

The Washington Post (July 15^th) presents this index of “things to come”: “A survey last month of more than 1,000 chief financial officers by Duke University and CFO magazine showed that nearly 60 percent of those executives don't expect to bring their employment back to pre-recession levels until 2012 or later -- even though they're projecting a 12 percent rise in earnings and a 9 percent boost in capital spending over the next year… When asked why companies are holding back so much, many economists cite broader uncertainty that goes well beyond anything happening in Washington. Firms aren't sure whether the economy can sustain a strong recovery. And as long as consumer spending remains low, there’s not much incentive for companies to ramp up.”

Catch-22: companies won’t start hiring again until consumer start buying; consumers won’t start buying until they are more certain about the job market. Under a threat of deficit devastation, there is increasing pressure on the ultimate consumer – the U.S. government – to reign back its own spending habits to get its borrowings under control. Trust me, there is more than enough corporate money out there to pay for new workers: “Nonfinancial companies are sitting on $1.8 trillion in cash, roughly one-quarter more than at the beginning of the recession. And as several major firms report impressive earnings [in mid-July], the money continues to flow into firms' coffers.” The Post.

The fact is, losing your job or getting a reduction in income as a result of reduced pay, contracting overtime or dissipating bonuses is at the forefront of most working Americans’ fears. The statistics seem to sustain not only the raw numbers of unemployed or under-employed but the duration of the job crisis: “The average length of time that the typical unemployed person has been looking for work increased again in June, to yet another record high of 35.2 weeks.” New York Times (July 2^nd).

The usual chorus of “cut taxes and regulations” and jobs will flourish rings hollow: “Some analysts said it may be hard to create policy that compels companies to use some of their cash to hire workers. ‘CEOs don't like taking risks. They kind of move in packs,’ said Zachary Karabell, president of River Twice Research… ‘There's not a whole lot that you could do to entice companies to hire,’ he added. ‘You could cut taxes on them, but they're not going to hire just because they have the extra cash, because they already have the extra cash.’” The Post. This slump is both a paradigm shift that has taken out unsustainable business plans and obsolete job skills – in a global economy where your competitor may be 12,000 miles away (and could change overnight) – as well as a seri es of vicious circles that no one seems to be able to break at any meaningful level.

I’m Peter Dekom, and I still cannot get used to the notion of “this is just the way it’s going to be for many years.”