Duke University surveys 937 Chief Financial Officers. The relevant highlights:
“Cash exists in two locations: bank reserves and balance sheets of healthy companies,” Harvey said. “Banks show no sign of unfreezing credit. They are lending to the government, not to businesses. However, U.S. firms are sitting on over $1.8 trillion in cash. When will it be unleashed?”
The survey results show 50 percent of respondents have no intention of deploying their cash over the next 12 months. More than half of responders say they will continue to sit on cash for liquidity to protect against another round of credit tightening and general economic uncertainty. Of the 50 percent that will deploy cash, only 56 percent will allocate to capital spending and investment.
“We were especially interested in the type of capital spending that creates jobs,” Harvey said. “The survey shows only 22 percent of firms say their new capital spending will lead to hiring. This bodes very poorly for employment in 2011.”
Its tempting to think big problems must have big complicated causes. Yet, there is a simple story that explains our economic woes: a dramatic increase in liquidity demand which the Fed still refuses to address.
So far, the data seem to support that simple story.
The 4% Club is still accepting nominations.
9 comments
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Wednesday ~ September 22nd, 2010 at 9:38 am
jazzbumpa
If you’ve said exactly what the Fed should be doing, I’ve lost track of it. Could you please either spell it out in simple terms a simple old retired guy can understand, or point to where you’ve already done that?
I’m looking for a specific action plan with clearly defined actions – not just raise the inflation rate.
Thanx,
JzB
Wednesday ~ September 22nd, 2010 at 9:58 am
Karl Smith
Jazz –
Raising the inflation target is my policy prescription.
In the next couple of days I hope to make a major post on why a target matters. I am prepping a submission for an Op-Ed at the Wall Street Journal, so that will have to come first.
Wednesday ~ September 22nd, 2010 at 11:05 am
Wonks Anonymous
It’s about time. The WSJ been giving too big a loudspeaker to inflation hawks.
Wednesday ~ September 22nd, 2010 at 10:43 am
Johnnie Linn
I have clipped a quote from the Duke news article cited above. I have inserted triple asterisks to emphasize two items that the Fed is not going to have much influence over. The “six-month window” will be of sufficient lenght to assess the outcome of the elections and lame-duck session.
TOP CONCERNS
Top concerns for U.S. CFOs include the ***federal government’s agenda*** and weak consumer demand. U.S. CFOs, who expect to raise the prices of their products by 1.4 percent, are also worried about price pressure from intense competition.
For the second quarter in a row, maintaining employee morale is among the top company-specific concerns. ***Health care costs*** also have reappeared among the top worries, as CFOs expect corporate health care payments to rise 10 percent in the next year.
Wednesday ~ September 22nd, 2010 at 11:32 am
jazzbumpa
Johnnie -
What an extraordinary job of Cherry picking. Do you read that report with an agenda in mind? Note that nothing is said about what specific aspects of the federal government’s agenda are causing their concern. And never mind that CFO’s are probably the most reactionary subset of knee-jerk reactionary corporate execs.
If you read any competent economist – like Karl, frex, you’ll learn that the real problem is “weak consumer demand.” As Krugman put it, “Full stop. End of story.”
And if we had single payer, universal health care, your second point would simply evaporate. It might be the single best thing that could be done to make American businesses globally competitive, and relieve some of that “intense competition.”
Cheers!
JzB
Wednesday ~ September 22nd, 2010 at 12:19 pm
Johnnie Linn
jazzbumpa
These same 937 reactionary knee-jerk CFO’s identified weak consumer demand and price pressure as top concerns. Any of the four can keep the firms on the sidelines. The one doing the cherry-picking as to which of the four should really matter to the CFO’s is you.
Having a robust health insurance public option available to all citizens doesn’t bother me as long as people may still buy and sell health care on the private market, employers don’t have to buy health insurance for their employess, and individuals are not required to buy health insurance.
Wednesday ~ September 22nd, 2010 at 11:18 am
jazzbumpa
OK. I can be patient. But I’m going to raise the bar a notch. Beckworth, as you cited in an earlier post, talks about raising inflation expectations.
http://macromarketmusings.blogspot.com/2010/09/dude-wheres-my-central-bank.html
Managing expectations might be a worth-while thing in its own right, but expectations are a set of intellectual-cum-emotional reactions to (collective) perceptions of current reality. As a policy prescription, this is, at best, trying to treat the symptoms, or, at worst, reversing cause and effect.
But perhaps I missing something. Help the non-economists fill in the blanks.
Thanks – I love what you’re doing.
JzB
Wednesday ~ September 22nd, 2010 at 1:56 pm
Demand, supply, and the Fed [The Economist] | DreamInn
[...] recognises, a shortfall in aggregate demand is constraining employment growth. Karl Smith provides evidence, in the form of a survey of almost 1,000 CFOs: The survey results show 50 percent of respondents [...]
Wednesday ~ September 22nd, 2010 at 2:09 pm
Demand, supply, and the Fed - Economics -
[...] recognises, a shortfall in aggregate demand is constraining employment growth. Karl Smith provides evidence, in the form of a survey of almost 1,000 CFOs:The survey results show 50 percent of respondents [...]