During this slow U.S. economic recovery companies tended to preserve cash rather than using it to hire or invest. However, last Thursday’s “flow of funds” report released by the Fed showed that the trend might be changing. The Fed revised (down nearly $500 billion) its estimates of how much cash companies are holding on their balance sheets. Before the revision, the Fed projected that corporate cash piles grew almost every quarter since the end of the recession. However, after the revision, corporations’ cash pile shrank: $1.74 trillion in Q1 2012 vs. $2.2 trillion in Q4 2011. Meanwhile, data from the BEA showed that corporate profits in Q1 2012 grew to $1.67 trillion annualized, compared to $1.5 trillion in the prior quarter. Corporate profits on a year-on-year basis grew 14.7 percent, compared to up 11.7 percent in the fourth quarter. This data is based on an analysis of Moran Zhang of the International Business Times.
According to our own survey earlier this year, here are some key take-aways:
- During the recession companies have become very lean. Now, those lean organizations are the “new normal”.
- Companies are looking for growth. The catch is that CEO’s are very careful adding new headcount. Executives are rather investing in productivity enhancing tools and processes.
- Growth starts with success in Sales. Smart growth means to allow top performers to excel while finding ways to bring underperforming parts of the sales and business development organizations to the next level. Only if this occurs, does it make sense to ramp up other parts of their operation.
There is still a lot of uncertainty in the market. The European Crisis is still unresolved. We have a potentially slowing down Chinese Economy. Our national economy is moving slowly as well. Things will change gradually for the better. And that should be considered ‘good news’.