Most economists agree that the United States will, at some point, enter another recession. But it remains to be seen exactly when that will happen or how severe the next recession will be. And journalist Dino Rabouin, in a report for Axios, stresses that many companies are being cautious in response to reports of an economic slowdown — and that caution, according to Rabouin, “could help insulate the economy from another damaging recession.”
Because they fear a “global recession,” Rabouin explains, many companies have opted to “use excess capital to reduce debt and add to cash reserves, rather than levering up and making risky bets as they have in the past.”
Citing data reported by Bank of America Merrill Lynch (BAML), Rabouin observes that “many companies” are opting to refinance “existing debt rather than make new purchases or spend.” On top of that, Rabouin adds, BAML data “shows S&P 500 companies, especially in tech, have slowed the pace of stock buybacks this year, with share repurchases in the third quarter down 12% year over year so far.”
Some recessions, of course, are much worse than others. The Great Recession was the most damaging economic event in the U.S. since the Wall Street crash of 1929 and the Great Depression of the 1930s. And Rabouin’s generally optimistic report isn’t saying that corporate reticence will prevent the U.S. from ever having another recession — only that it could delay the arrival of one, or perhaps soften the blow should one arrive.
Rabouin writes, “The combination of lower debt, higher cash balances and less risky investments may not be exciting news for the stock market, but could well give the U.S. economy another leg to stand on in the face of rising global uncertainty and weakening growth.”