PORTLAND, Maine CHERRY HILL, N.J. May 25, 2012 www.td.com/economics
The report, titled, "Milking America’s Cash Cow: The Case for Stronger Investment Growth," asserts record-high corporate profits and liquidity (as a share of GDP), along with a need for updated equipment, may drive companies’ investment in equipment and software over the next two quarters at a 6-8% rate. The sub-2% rate of growth in the first quarter of this year is not consistent corporate balance sheet fundamentals.
According to the report, corporate profits make up 10% of GDP, nearly double its pre-recession average, while the ratio of current assets to short term liabilities—a common measure of liquidity—has risen to levels not seen since the 1950s. As a result, a substantial gap has emerged between cash-on-hand and equipment investment.
The severe pullback in investment during the recession caused the nation’s stock of equipment & software to shrink in real terms for the first time since WWII. There is evidence that the process of rebuilding that stock is not yet complete, even in the face of rising consumer demand.
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SOURCE TD Bank