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Companies pile up cash but remain hesitant to add jobs

Ten residents from around the region kept journals for The Washington Post about how their lives have changed since losing their jobs.

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The trend of companies holding more cash is not new. Between 1980 and 2006, the average cash-to-assets ratio for U.S. industrial firms more than doubled, according to research by finance professors.

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One explanation, said finance professor René Stulz at Ohio State University, is that as competition has become more global, it's become harder for individual companies to survive, and so they hold on to more cash to be safe. He added that companies have also increased their cash holdings in the wake of the financial crisis, particularly since the bankruptcy of Lehman Brothers in September 2008, as the banking system has become more fragile and credit has become scarce.

Tech companies in particular tend to build large cash reserves. Intel, which reported on Tuesday its biggest quarterly profit in a decade, brought aboard 400 new employees worldwide in the last quarter, though it would not identify in which countries the hirings took place. Intel spokeswoman Lisa Malloy added that the firm expects to spend more money, from $4.5 billion last year to $5.2 billion this year, investing in capital projects around the world.

And yet the firm has $1.7 billion more in cash than it had a year ago. Intel said it is enjoying strong demand for its chips, so low demand doesn't help explain the firm's mountain of cash.

Alcoa, which reported strong earnings Monday, said it had $493 million more in cash this quarter compared with a year earlier. Spokesman Kevin Lowery said the company plans to keep its head count steady.

Some analysts said it may be hard to create policy that compels companies to use some of their cash to hire workers. "CEOs don't like taking risks. They kind of move in packs," said Zachary Karabell, president of River Twice Research.

"There's not a whole lot that you could do to entice companies to hire," he added. "You could cut taxes on them, but they're not going to hire just because they have the extra cash, because they already have the extra cash."

Staff writer Michael D. Shear contributed to this report.


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