“Companies flush with cash remain reluctant to hire or make capital purchases, choosing to reward investors rather than expand their businesses.
Recent economic data exemplify the trend: Private payrolls grew by just 135,000 during May, according to ADP, while employment components both for the Institute of Supply Management’s manufacturing and nonmanufacturing indexes show a flat jobs outlook.
The grim hiring prospects come as nonfinancial firms hold nearly $1.8 trillion in cash on their balance sheets.
Rather than look to expand, though, they’ve chosen to participate in aggressive share buybacks and dividend increases to reward investors.
According to TrimTabs, companies have spent $290.7 billion this year on buybacks, which are aimed at decreasing the amount of available shares—or float—thus driving up stock prices.
That effort, at least, has been a success.
The Standard & Poor’s 500 has gained more than 13 percent in 2013, led by big gains in financials and health care stocks.
Worried about growth prospects, S&P 500 companies have been passing out dividend payments with a free hand as well, rewarding shareholders with a record $37.5 billion thus far, rather than hiring….”
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