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| American firms don't dare invest in America...so why should you? |
There is no clearer sign that Americans don't believe in America than US corporations electing to give earnings back to shareholders or buy back stock than to invest those earnings. However, this pattern has been evident Stateside ever since the global financial crisis. Firms simply refuse to make outlays that may have once promised to increase output in the future. Why would firms decide to return money to shareholders or buy back stock instead of making productive investments? The only logical explanation is that the US economy has prospects poor enough to discourage any sort of investment. In other words, the future of America is shot, and its firms use their money
accordingly:
Data show a broad array of companies have been plowing more cash into dividends and stock buybacks, while spending less on investments such as new factories and research and development...
Laurence Fink, chief executive of BlackRock Inc., the world’s largest money manager, argued as much in a March 31 letter to S&P 500 CEOs. “More and more corporate leaders have responded with actions that can deliver immediate returns to shareholders, such as buybacks or dividend increases, while underinvesting in innovation, skilled workforces or essential capital expenditures necessary to sustain long-term growth...”
An analysis conducted for The Wall Street Journal by Standard & Poors Capital IQ shows that companies in the S&P 500 index sharply increased their spending on dividends and buybacks to a median 36% of operating cash flow in 2013, from 18% in 2003. Over that same decade, those companies cut spending on plants and equipment to 29% of operating cash flow, from 33% in 2003.
So firms are using cash like it's game over for America. How will this play out in the future?
It is it too early to know how—or whether—the shift will affect the overall economy. Some economists predict an investment reduction will mean less growth and fewer jobs. “If investment falls, then you’re losing demand in the economy, you’re losing expenditures, you’re losing economic stimulus,” says Steven Fazzari, an economist at Washington University. “That’s hurting jobs.”
People in America used to dream about the future. I guess not anymore.
