U.S. corporations have been finally opening up their wallets, after years of hoarding ever more cash, according to a Monday report by Moody’s Investors Service.
The report states that U.S. nonfinancial corporations rated by Moody’s held $1.69 trillion in cash on their balance sheets, a 15.2% drop from the year earlier.
“With improved access to global cash following tax reform, we expect aggregate cash balances will continue to decline, particularly as many cash-rich companies repay maturing debt and return more cash to shareholders,” Richard J. Lane, senior vice president at Moody’s, wrote in a research note.
Supporters of the 2017 tax cut, signed into law by President Trump, could point to this data suggesting that the law is having its intended effect of encouraging companies to invest more of their profits in their businesses. Indeed, total capital expenditures rose in 2018 to a record $851 billion, versus $761 billion a year ago, an 11.8% increase that ranks as the fastest since 2007.
Lower taxes on corporate profits may make a greater number of projects profitable to invest in, all else equal.
But corporations were also very eager to return tax savings to shareholders, as evidenced by the 60.4% rise in shareholder buybacks from 2017 to 2018.
More worrying, however, is that the jump in capital expenditures may already be running out of gas, even though the corporate tax cut was made permanent. Business investment spiked in the first and second quarters of last year, rising 11.7% and 8.7%, respectively, but has steadily fallen since that point, and only rose 2.7% in the first quarter of 2019.