Now, back to all that corporate cash. There are two schools of thought: The prevailing one among policymakers and Keynesian economists is, alas, (in my humble view) the wrong one—that consumption grows the economy. The other one, the correct one, says that production grows the economy—that, ultimately, we must produce before we can consume (read Goods Buy Goods). Which speaks volumes about one of the chief reasons why we remain mired in a historically slow recovery: it’s that companies have been reluctant to invest in the research, development and, eventually, the production of new stuff—the kinds of activities that would grow the economy and put people to work. I’d love to explore with you why companies have, to this point, idled the fuel that would propel themselves and the global economy to greater heights, but that would take more time than you and I can spare at the moment (just think new regs, the probability of more new regs, and the threat of higher taxes). So, for now, suffice it to say that despite what I just alluded to, I suspect (or hope) that—barring the next Great Recession occurring anytime soon—companies are about to begin (ever so gingerly, alas) doing more than simply buying back their own stock with all that cash. Which, again, could do wonders for the economy, employment, and, ultimately, earnings growth and share prices going forward. Time will tell…
Here's a snippet from today's International Business Times article "US Companies Set For Record $2 Trillion Of Capital Investment In 2014, Reversing Restraint Shown In Recession: BMO":
“The U.S. is on the verge of an early capex [capital expenditure] recovery, one that is likely to have some considerable legs,” Brian Belski, BMO chief investment strategist, said.
Ford Motor Co. (NYSE:F) plans to increase investment from $6.5 billion to $7.5 billion this year to add capacity, Bloomberg reported. Analysts predict U.S. auto sales will shoot up to pre-recession levels this year. Microsoft Corp. (NASDAQ:MSFT) plans to increase investment by more than 200 percent in its fiscal 2014 ending in June to $6.5 billion, on data centers and networking equipment. Honeywell International Inc. (NYSE:HON), the New Jersey-based manufacturer, is investing $1.2 billion, about a 30 percent increase from 2013, partly to build new chemical factories in Louisiana and Alabama, Bloomberg reported.
Now that's encouraging. For that (profit-seeking capital investment) --- as I explained last night --- is how you grow an economy and create jobs.