PLANO, Texas (8/11/10)--Business earnings will guide the U.S. economic recovery, but until corporations begin spending more cash, those earnings lack the momentum to spark a recovery, according to Don Reynolds, founder of 21st Century Forecasting and an encore presenter at Southwest Corporate FCU’s upcoming 33rd annual Economic Forum. The Federal Reserve recently reported that America’s 500 largest nonfinancial corporations have amassed $1.8 trillion in cash on their balance sheets--the highest level in nearly 50 years. Funneling that cash back into new construction, equipment and employees would go a long way toward energizing the economy, he said (eFacts
Aug. 3). “According to Standard & Poor’s, these companies have an average of $1 in cash for every $10 in equity value,” Reynolds said. “They have fabulous balance sheets, and yet this cash is sitting in money market funds, because companies are uncertain which direction the country is headed.” Although business confidence is shaky, he said he believes that “over the long term, business earnings eventually will take the economy where it needs to go.” Reynolds projects that economic recovery is still five years away. He does not, however, subscribe to the belief that inflation is just around the corner (LoneStar Leaguer
Aug. 9). “I don’t buy it,” he said. “Flight to quality will continue to keep downward pressure on interest rates. The giant question right now is whether deflation is coming.” Although inflation is not in his short-term forecast, he predicts an increase in energy prices as a result of growing demand. “In India, oil consumption averages two barrels per person per day. In China, oil consumption averages 0.2 barrels per person per day. Americans, on the other hand, consume an average of 25 barrels of oil per person, per day.” Reynolds identified three other questions that could impact the speed of the U.S. economic recovery. They are:
* Is China headed for an economic downturn? * Is the euro national debt crisis that began in Greece going to snowball? and * What happens when the Obama administration’s stimulus package ends?
Reynolds’ research firm concentrates on long-term global, economic, demographic and technological trends, and he is often described as a “real world economist.” He has worked for three of the nation’s largest brokerage firms, served 11 years as chairman of the investment advisory board at a $22 billion trust fund, taught at the university level for 10 years, and served on a university board of regents. Southwest Corporate FCU’s 33rd annual Economic Forum will be held Oct. 26-27 in Frisco, Texas.