Skip to main content
Canada’s most-awarded newsroom for a reason
Enjoy unlimited digital access
$1.99
per week
for 24 weeks
Canada’s most-awarded newsroom for a reason
$1.99
per week
for 24 weeks
// //

The unprecedented pile of cash on North America's corporate balance sheets might finally be set to shrink. But while the so-called "dead money" is showing signs of life, it would be a big stretch to call it lively, at least from a broader economic perspective.

Independent financial market research firm FactSet reported this week that cash holdings at S&P 500 companies were $1.34-trillion (U.S.) in the first quarter, down 4.7 per cent from the prior quarter. That's the first decline since 2012, snapping a string of six consecutive quarterly increases that had added nearly $200-billion to the U.S. stash.

In Canada, too, the cash buildup has reversed course. Statistics Canada recently reported that corporate cash balances fell to $464-billion (Canadian) in the first quarter, the first quarterly decline in a year. Canada's cash pile is more than $30-billion (or 6.5 per cent) smaller than it was at its peak in 2012.

Story continues below advertisement

From a longer-term perspective, the cash balances are still severely elevated. In both countries, corporate cash holdings are nearly double the levels that prevailed in the years leading up to the recession. Still, any evidence that all that cash is starting to be put to work would be a good sign for the Canadian and U.S. economies, both of which been hampered by sluggish business capital investment.

But even as the cash piles have begun to diminish, the amounts being committed to capital investment remain less than compelling. Canada's business fixed capital investment actually dipped slightly in the first quarter, and has barely budged in the past two years. In the U.S., fixed capital investment fell 1.8 per cent in the first quarter.

Where is the cash going, then? Well, mostly to investors. Canadian companies on the S&P/TSX composite index increased total dividend payments by 8 per cent last year. FactSet reported that shareholder distributions (dividends plus share buybacks) in the S&P 500 companies hit a record $249.1-billion in the first quarter. Capital spending by those same companies, by contrast, totalled $146.6-billion.

S&P 500 dividends have grown 13 per cent in the past 12 months, while buybacks have grown 34 per cent; capital spending in the same period grew just 6 per cent. In the past 12 months, U.S. companies have spent more than $500-billion (U.S.) buying their own shares – hardly a recipe for economic expansion.

While an uncertain economic horizon has certainly contributed to corporate hesitation on capital investment, the markets simply haven't been rewarding big-investing companies over the longer run. Royal Bank strategist Mark Chandler noted in a report this week that over the past five years, capital-spending-intensive sectors of the Canadian market have been the weakest performers. Similarly, Pierre Lapointe, head of global strategy and research at Pavilion Global Capital Markets, said in a recent research note that over the past decade, stocks of U.S. companies with the lowest capital-spending-to-sales ratios have outperformed those with the highest capex-to-sales by 40 per cent.

Mr. Lapointe noted, however, that in the past two years, the capital-spending-heavy companies have started to outperform – and suggested that company mentality simply hasn't caught up to the shifting trend. A recent Merrill Lynch equity strategy report argued that capital allocation is cyclical – as the economy accelerates, companies typically are rewarded more for spending than for saving – and suggested that we may be approaching an "inflection point" where economic growth opens the spending floodgates.

That sums up as well as anything the catch-22 for the North American economy on the business-investment front. We need businesses to spend in order to kick-start economic growth. But businesses are waiting for economic growth in order to kick-start their spending.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies