Big companies hesitant to dip into cash

In the summer of 2008, steel giant Nucor decided to raise some cash. It issued new shares of stock and floated some corporate bonds. As financial markets crumbled, the company ignored pleas from some investors and analysts that it buy back shares, which now are selling for about half their peak.

Today, as a result, Nucor has a $2.2 billion cash horde — and one year into the great recession, Chief Executive Daniel DiMicco is sitting on it.

"Everything is still on hold because we don't have a lot of confidence that the right things are being done in Washington to reinvigorate the economy," said DiMicco. "We're keeping our powder dry."

Nucor isn't alone. The balance sheets of large U.S. corporations are for the most part in good shape. Many big companies have piles of cash on hand and credit markets have thawed so that they can raise new funds. Between Jan. 1 and Nov. 2, U.S. corporations overall raised $740.8 billion by issuing bonds, up from the $522.2 billion raised during the same period last year and almost as much as the $779.8 billion raised in the go-go year of 2007.

But most U.S. executives lack enough confidence in the economy to expand their businesses. And as long as consumer spending is lagging too, that leaves the federal government straining to stimulate a recovery that is still struggling to gain speed.

"Cash is high. Interest coverage ratios are low. And big businesses are able to issue bonds pretty cheaply," said Mark Zandi, chief economist of Moody's Economy.com. "The concern is that they're not using those balance sheets, that they're not out investing or hiring. And until they do, the economy is not going to engage, and there is always the risk that we're going to fall back into recession."

Financial firms have been among the leaders in raising money to bolster their reserves. Citigroup, for instance, has nearly doubled its cash reserves to $244.4 billion. But top technology companies are flush too. Microsoft has $36.7 billion of cash and Google has $22 billion.

Executives have different reasons for their reticence. DiMicco is jittery about the future. From his vantage point, he said, companies have recently been restocking the supplies they normally have on hand but final sales are still languishing. "Whatever positive uptick there has been to this point has been an inventory correction, not a real improvement in demand," he said.

Other executives are still recovering from last year's scare when capital markets completely seized up and many companies were unable to borrow money at any price, threatening the ability to finance day-to-day operations.

"A lot of those funds are just being hoarded as cash because of the near-death experiences many businesses felt they were going through last year," said Edward Yardeni, chief investment strategist of Yardeni Research. "Companies dodged that bullet, and now they want to make sure they have a bulletproof vest."

While big U.S. companies are having relatively little trouble finding cash, smaller firms aren't faring as well. Unable to sell corporate bonds to investors because they are too small or because they are privately held, small and medium-sized companies rely heavily on bank loans — and banks haven't been lending as freely as before.

That's important for job creation, said Zandi. He said that businesses that employ fewer than 20 people account for 25 percent of U.S. employment, but accounted for 40 percent of the job losses during 2008.