Posted by Joseph Y. Calhoun, III

 As I’ve said many times over the last year, history says the recovery is roughly symetrical with the recession; the deeper the recession, the stronger the recovery. I think until proven wrong, one has to assume that it isn’t different this time. Several stories on Bloomberg this morning, taken together, point to a strong recovery. First is this one about the build up of cash at the corporate level:

Feb. 11 (Bloomberg) — A majority of companies in the Standard & Poor’s 500 stock index increased cash to a combined $1.19 trillion while simultaneously reducing spending, keeping a jobs recovery on hold.

Caterpillar Inc., Eaton Corp., Walgreen Co. and General Electric Co. are among 260 companies that ended last quarter with $522 billion more than a year earlier after cutting capital spending by 42 percent. Economists say the dearth of investment is keeping the jobless rate at about 10 percent as the U.S. emerges from its worst recession since the 1930s.

…..

Based on the latest quarterly reports from S&P 500 companies, the 262 companies increased cash and short-term investments by a combined 78 percent from a year earlier while reducing spending by $30.1 billion to $41.5 billion. For the entire S&P 500, cash rose about 14 percent to $2.18 trillion.

Steps companies took to accumulate cash also included lowering costs, selling shares, raising debt, crimping dividends and putting share repurchases on hold. In February 2009, GE decided to cut its quarterly dividend to 10 cents a share from 31 cents, saving about $9 billion annually. The reduction in the annual payout was the company’s first since 1938.

The reason companies are accumulating cash rather than hiring and investing is the uncertainty surrounding the policy arena. Take Cisco as an example:

Some companies are taking initial steps. Cisco Systems Inc. added about 2,100 workers during the quarter ending Jan. 23 from acquisitions and to meet higher demand for networking equipment, CEO John Chambers said in a Feb. 4 interview.

The San Jose, California-based company has increased its cash by $10 billion to $39.6 billion over the past year and may be ready to begin investing if the U.S. government follows the basic tenet of “do no harm,” Chambers said. Cisco may add as many as 3,000 workers over the next several quarters, he said.

Starting to Hire

“Going forward — assuming government regulations that favor job creation, economic growth, exports and innovation — we would continue to add, balanced around the world,” he said.

Primum non nocere is the best economic policy for most politicians to follow since they know so little about how the real world works. Unfortunately, neither party is very good at just leaving well enough alone. That this is an election year does bode well for the near term though. The Democrats don’t want to do anything to piss off voters and Republicans believe they just need to lay low to pick up major seats in November. That sounds like a recipe for not much getting done.

The question is whether the reprieve from policy changes this year will be sufficient to convince companies to start investing and then hiring. I suspect that will depend to some degree on how the mid term elections shape up. If the polls continue to trend toward the Republicans, companies will probably assume future gridlock and start putting some of their cash hoard to work. If not, they’ll probably sit on their hands until after the elections. In any case, this other Bloomberg article seems to indicate companies will start to invest this year:

Feb. 11 (Bloomberg) — Chief executive officers in the U.S. are more confident that the world’s largest economy is on the road to recovery as the job market stabilizes and business investment increases, a private survey found.

The Business Council’s confidence gauge climbed to 64.7 this month, the highest level in at least four years and up from 63.2 in an October survey, a report from the Washington-based group today showed. Readings greater than 50 signal economic growth.

Almost 70 percent of the executives surveyed said employment at their companies is likely to remain stable this year, indicating the economy will be slow to recover the 8.4 million jobs lost since the recession began. Some respondents said they were skeptical the Obama administration’s stimulus program enacted last February would boost growth or employment.

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By the end of the year, unemployment will be within a range of 9.6 percent to 10 percent, according to 61 percent of the company chiefs. The jobless rate unexpectedly fell to 9.7 percent in January from 10 percent the previous month, the Labor Department said Feb. 5.

About 30 percent of respondents said they expect President Barack Obama’s $787 billion stimulus package to “have little or no impact on the economy in 2010,” with more than half saying it will have a similar effect on job creation, according to the report.

….

The share of company chiefs that said they will invest more on new plants and equipment doubled to almost 50 percent, according to today’s Business Council survey. Fifty-seven percent of executives polled said they have seen an improvement in their industries in the past six months, and about 61 percent expect the gains to continue during the next six.

Okay, let’s put this together. Most of the CEOs don’t expect to hire and they estimate the unemployment rate will be 9.6% at the end of the year when it’s already at 9.7%. They don’t expect anything from the stimulus plan, but half of them intend to increase investment because they’ve seen an improvement in their industry. They have cash on hand with which to invest so credit isn’t much of a concern. My guess is that the CEOs are underestimating the plans of other companies and are therefore underestimating economic growth. This could get interesting; if CEOs start to realize they’ve underestimated growth there could be a hiring surge as they seek to grab the best employees before their competitors.