Corporations perch on big piles of cash

March 29, 2010 at 12:00a.m.

Los Angeles Times

LOS ANGELES

The brutal recession has left many American families, small businesses and state and local governments in financial ruin or teetering on the brink.

But it’s a much different story for the nation’s biggest companies. Many have emerged from the economy’s harrowing downturn loaded with cash, thanks to deep cost-cutting that helped drive the U.S. unemployment rate into double-digits.

And although the banking crisis starved countless entrepreneurs for money last year, credit was never in short supply for business titans. Corporate America’s robust finances have been a boon for the companies’ stock prices: The blue-chip Dow Jones industrial average has risen to 18-month highs.

Some experts say the strength of the largest firms will be a key advantage for the nation in the next phase of the economic recovery.

But others worry that the business giants’ clout has increased significantly at the expense of workers — the millions in the ranks of the jobless as well as those who remain employed but must work harder than ever.

By one prominent measure, major companies had extraordinary success weathering the recession: Industrial companies in the Standard & Poor’s 500 index, a list that includes such giants as 3M Co., Coca-Cola Co. and United Technologies Corp., ended last year with a record $832 billion in cash and short-term securities on their books, up 27 percent from a year earlier.

The U.S. economic recovery could be stunted unless a large share of that corporate wealth flows to average workers, either in the form of new jobs or higher wages, some analysts say.

“If we don’t get jobs growing soon and we don’t give ordinary working families a sense that they’re benefiting from this recovery, there’s going to be an economic price to pay,” said Thomas Kochan, a management professor and co-director of the Institute for Work and Employment Research at MIT in Cambridge, Mass..

Historically, smaller firms have led the way in U.S. job creation, not Fortune 500 companies. But economists note that smaller companies provide many goods and services to larger firms, so the good health of the giants should help firms down the food chain.

There have been some signs that businesses overall are beginning to reinvest their cash mountain. The government’s chief measure of capital spending, outlays for equipment and software, rose sharply in the last three months of 2009 after plummeting in the first half.

Huge gains over the last year in worker productivity — output per hour worked — also have reduced the need for additional staff in the near term. But the harder people work, the less their employers may feel the need to add to payrolls.

Nonfarm productivity rose at a 6.9 percent annual rate in the fourth quarter of last year after surging more than 7.5 percent in both of the preceding quarters.