With U.S. companies sitting on an estimated $1.8 trillion in cash, it raises the question: Why aren't they deploying more of their hoard to expand their businesses? Or one might channel John Maynard Keynes to ask: Where have the "animal spirits" gone?
Although capital spending in the U.S. is up 12 percent since the lows of early 2009, it's still running $88 billion below the peak of $1.34 trillion reached in the first quarter of 2008, says Joseph LaVorgna, chief U.S. economist at Deutsche Bank (DB). He doesn't expect capital spending to catch up to that peak level and officially start to expand until the second quarter of 2011. (LaVorgna's definition of capital spending includes physical equipment and software, but not structures such as new stores or manufacturing plants. Spending on structures is about 2 percent of gross domestic product, one-third the size of capital spending's contribution to GDP, he says.)
"The trend and momentum have definitely turned and it's just a matter of time before you see other companies give way to capital spending, and eventually that will result in hiring," says LaVorgna. But with spending running $88 billion below peak, he says employment "should be farther along than it is."
Companies added 67,000 jobs in August, Labor Dept. figures showed Sept. 3. Total private employment has increased by 763,000 this year.
Companies that have built up a lot of cash are starting to take some chances such as expanding into new markets, which requires hiring new workers, says John Challenger, chief executive officer of Challenger, Gray & Christmas, an employment consulting firm. U.S. companies have announced the hiring of 118,209 new employees through August, according to data collected by the firm.
"We're still in recovery phase. These aren't gangbuster hirings," says Challenger. "They are signs of a turnaround, but it certainly doesn't mean that the economy is roaring ahead full tilt."
So who's stepping up to the plate? Some companies refuse to be cowed and are taking big, if calculated, chances, including ambitious capital projects, hiring new workers, and expanded investment in research and development, according to growth-oriented mutual fund managers contacted by Businessweek.com. If there's a common denominator, it's a perceived opportunity and confidence in sustainable demand, whether due to new trends in technology or to new markets that need certain products. Other names came from a list of the top-hiring U.S. companies through July 2010 compiled by Challenger, Gray & Christmas.
Heading the Challenger list was Starwood Hotels & Resorts Worldwide (HOT), which plans to add 12,000 jobs in 2010, mostly through 80 to 100 new hotels scheduled to open globally. Roughly half of the new jobs will be in the U.S. If Starwood is representative, much of the hiring is likely tied to new facilities that companies are building.
Praxair (PX) is spending $1.4 billion this year, including on the building of new plants for customers around the world, about the same as before the recession, but only because three-quarters of the industrial gas manufacturer's capital spending is tied to new supply agreements already signed with customers. Tom Ognar, a senior portfolio manager at Wells Capital Management, likes that Praxair has been combining capital spending with returning cash to shareholders via dividend increases and share buybacks.
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