Canadian firms pile up ‘sleeping’ cash during first quarter
OTTAWA — Maybe “dead money” is a misnomer. Perhaps it’s more accurate to say cash reserves of Canadian corporations are merely “sleeping” — and growing — until there is a louder economic wake-up call.
Statistics Canada said Thursday private non-financial corporations increased their cash holdings to $630 billion in the first quarter of this year — up from $621 billion at the end of 2013.
“It would be nice if we could wake it up and get it invested in the economy,” said economist Erin Weir, at the United Steelworkers union. “This accumulation of ‘dead money’ helps explain the lack of business investment despite record corporate profits.”
Corporations have been singled out by the Bank of Canada for not contributing more to the economic recovery, which has relied heavily on consumer spending for growth since the 2008-09 recession.
It’s been nearly two years since Mark Carney, Canada’s central bank chief until his departure last June to head the Bank of England, ruffled corporate feathers by publicly uttering the phrase “dead money” to describe money sitting idle on balance sheets.
That rhetoric has been toned down since Stephen Poloz, formerly the president of federal credit agency Export Development Canada [EDC], replaced Carney as head of the Bank of Canada.
While acknowledging in a speech this month that Canadian business have not been expanding their markets as quickly as hoped, Poloz said “the ingredients for a pickup in exports remain in place, including the lower Canadian dollar and an anticipated strengthening of foreign demand.”
But still, the numbers speak for themselves for themselves when it comes to corporate spending.
Statistics Canada data released Thursday show companies has a total of $629.7 billion in cash reserves in the first quarter of 2014 report, up from $620.6 billion during the September-to-December period last year. Compare those levels to the $534.6-billion in corporate cash reserves in the fourth quarter of 2012 and $513.5-billion in the first three months of that year.
“The gap between the recovery and profits, and the lack of recovery in investment, is what explains this huge accumulation of corporate cash,” said Weir.