News that non financial corporations now hold near record amounts of cash — over $2 trillion dollars by some measures — reveals a potential powder keg for economic growth and a possible November election surprise.
Should corporations open their wallets and begin deploying that cash via purchasing equipment and hiring workers, the economic heartbeat of the US could start to rally.
We are already witnessing the beginning signs of the loosening of purse strings as the rate of corporate spending on equipment and software increased over 20% from the previous quarter. According to a historical study by Barclay’s, when this purchase rate increased by double digits, job growth followed. Job growth is key for the US economy as more jobs equal more consumer spending. Consumer spending makes up close to 70% of the US economy. Be cautioned however, one characteristic of this economic downturn is that it is behaving differently than the average decline, so history may not repeat or even rhyme this time around.
Clouding decisions to deploy cash in the form of hiring is the legislative and political environment in Washington. The double edged sword of new healthcare legislation and the potential to repeal tax cuts seems to be keeping hiring in check. Cue the November election and the intrigue increases. Could the recent uptick in spending by corporations on equipment and software be an election boon to Democrats or a leading indicator of a Republican landslide?
The economy is a key issue in the upcoming election and some have identified it as the anchor holding Democrats hopes down. Should this recent capital spending uptick foretell economic progress in the coming months, Democrats could benefit in November. A more conspiratorial interpretation of this data could be that corporations believe Republicans will take considerable ground in November and thus they are increasing capital purchases now to be ready to hire after the election. After all, a Republican landslide could mean that both the new healthcare legislation and a repeal of tax cuts would be in jeopardy. In the end, I believe that any possible economic gains from corporate spending will be too little and too late to save the Democratic party from a large loss of seats in Congress. Even though, in my estimation, Republicans have not done a great job of offering creative alternatives to fix the economy, they are the primary alternative to Democrats. Certainly the Tea Party is likely to see a few victories but ultimately Republicans will be the big winners this fall and could receive the real benefits after the election from corporate cash being deployed in the coming months.
Stay tuned as two interwoven worlds — business and politics — mix it up in a brand new reality show this fall with the hope of getting the US economy back on track.