{"id":2911,"date":"2009-12-11T11:57:02","date_gmt":"2009-12-11T11:57:02","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=2911"},"modified":"2025-03-27T15:48:57","modified_gmt":"2025-03-27T15:48:57","slug":"more-good-news-on-us-corporate-finances","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=2911","title":{"rendered":"More good news on US corporate finances"},"content":{"rendered":"<p>US non-financial corporations&#8217; financial surplus &ndash; the difference between their retained earnings and capital spending &ndash; rose to 1.3% of GDP in the third quarter, according to flow of funds accounts data released yesterday. Excluding the third and fourth quarters of 2005, which were distorted by a one-off repatriation of foreign profits to take advantage of temporary tax incentives, the surplus was the highest since the fourth quarter of 1960 &ndash; see first chart.<\/p>\n<p>The further improvement last quarter reflected a combination of stronger profits and cuts in dividends and fixed investment, partly offset by slower destocking.<\/p>\n<p>On top of this surplus, corporations raised cash from equity transactions for a second quarter, i.e. issuance exceeded share buy-backs and retirements due to cash take-overs &ndash; second chart. Bond issuance fell back from its record first-half pace but was again substantial.<\/p>\n<p>Strong internal cash generation combined with capital market issuance allowed firms to increase their holdings of liquid assets and pay down short-term debt. The liquidity ratio &ndash; liquid assets divided by short-term liabilities &ndash; continued to surge, therefore, reaching its highest level since the fourth quarter of 1959 &ndash; third chart. This mirrors improvements in the Euroland and UK and supports hopes of a recovery in hiring and investment.<\/p>\n<p>Some commentators have interpreted the contraction of bank lending to companies as supply-driven and likely to curtail business expansion. The flow of funds accounts suggest that bank debt repayment has been mostly voluntary, reflecting the financial surplus and fund-raising in share and bond markets. Bank loans and commercial paper outstanding fell more slowly last quarter and may stabilise and recover as destocking ends &ndash; second chart.<\/p>\n<p>The yield spread of non-investment-grade corporate bonds over Treasuries is inversely related, with a lag, to the sum of the financial surplus and equity sales, expressed as a percentage of GDP. This remained historically high last quarter, suggesting scope for further spread compression &ndash; final chart.<\/p>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/graphs\/us-corp111209.jpg?__SQUARESPACE_CACHEVERSION=1260534681400\" alt=\"\" \/><\/span><\/span><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/graphs\/us-corp-2-111209.jpg?__SQUARESPACE_CACHEVERSION=1260534706681\" alt=\"\" \/><\/span><\/span><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/graphs\/corp-liq111209.jpg?__SQUARESPACE_CACHEVERSION=1260534727930\" alt=\"\" \/><\/span><\/span><br \/><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/graphs\/us-high111209.jpg?__SQUARESPACE_CACHEVERSION=1260534746711\" alt=\"\" \/><\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>US non-financial corporations&#8217; financial surplus &ndash; the difference between their retained earnings and capital spending &ndash; rose to 1.3% of GDP in the third quarter, according to flow of funds accounts data released yesterday. Excluding the third and fourth quarters of 2005, which were distorted by a one-off repatriation of foreign profits to take advantage [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-2911","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2911","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2911"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2911\/revisions"}],"predecessor-version":[{"id":5220,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2911\/revisions\/5220"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2911"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2911"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2911"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}