Companies Still Hoarding Cash Instead Of Hiring

Another reason why companies aren't hiring: they're too busy hoarding cash. Companies continue to prefer cutting their spending and holding onto extra earnings instead of taking on more workers. While this behavior is common during a recession, now that the U.S. is technically in recovery, will this soon change?

Bloomberg reports:

A majority of companies in the Standard & Poor's 500 stock index increased cash to a combined $1.19 trillion while simultaneously reducing spending, keeping a jobs recovery on hold.


Caterpillar Inc., Eaton Corp., Walgreen Co. and General Electric Co. are among 260 companies that ended last quarter with $522 billion more than a year earlier after cutting capital spending by 42 percent. Economists say the dearth of investment is keeping the jobless rate at about 10 percent as the U.S. emerges from its worst recession since the 1930s.

Technically, the recession ended in the third quarter, but big companies accumulating cash instead of new workers did not. Given that it's so hard to be sure if the economy is fully on the mend, that's a pretty logical response. And since in the fourth quarter, companies were still draining their inventories, there's no reason to think that they would have begun hiring yet.

So should we expect companies to stop cutting costs and start hiring now that inventories are lower? Maybe, maybe not. If companies are convinced that demand will increase significantly enough to warrant that hiring, then they may need more staff to ramp up production. But since they're more cautious than ever, they'll probably wait until they actually experience that demand, rather than try to anticipate it. In the meantime, they'll just rely on higher productivity from their current employees to pick up the slack.