Slow-Growth GDP, Unemployment Culprit: U.S. Companies Hoarding Cash

Analysis

July 29, 2011 10:05 AM EDT

New government data released Friday reveals the economy barely grew at all in the first half of the year, signaling that unemployment will remain high and that the nation's housing slump may continue longer than many economists had hoped.

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Everybody wants to know what it will take to get America's economy moving again, throttling past the meager 0.4 percent growth the Commerce Department says we experienced in the first quarter of this year and the 1.3 percent growth rate registered for the spring.

The answer can't be found in Washington. Or in the pocket books of American consumers. Not directly anyway.

Some like legendary investor and Berkshire Hathaway leader Warren Buffett suggest an imminent housing recovery will get people back to work, thus getting the economy moving again.

But that's the wrong side of the chicken and the egg argument.

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Housing isn't going to recover to any meaningful degree any time soon. The only thing that will get America moving again is companies letting go of hoarded cash, putting people back to work.

Since the recession officially ended, Wall Street and Main Street haven't shared the same interests.

Wall Street is on a road leading to record corporate profits, while Main Street is on a road leading to high unemployment and sluggish wage growth.

Corporate America has never been so lean and lush.

Many stocks are trading near 52-week highs, fully recovered from hits than landed hard during the Great Recession of 2008. Two years after the official end of the recession was declared, American companies are posting strong, and in many cases record, earnings in the second quarter of this year.

In fact combined earnings of companies in the Standard & Poor's 500-stock index are expected to increase almost 14 percent from the same period one year ago, spelling record results for many corporations.

Also, corporations collectively are hoarding more cash than ever before, posting glowing balance sheets. At the end of 2010, companies held an estimated $1.9 trillion of excess cash, and so far in 2011 most have not let go.

Apple, for instance, now has $76 billion in cash on its books.

Contrast that with what's happening on Main Street.

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