While many Americans are living on tight budgets because of lost jobs or fear of losing a job, companies face a different dilemma:  They’re sitting on growing piles of cash.  Faced last year with the doomsday scenario of the next Great Depression, companies slashed jobs and cut expenses.  The depression never came, and money continued to roll in, albeit at lower levels.  That’s left companies overflowing with cash—at least a half-trillion dollars more than they had at the end of 2008 and probably much more.

CEOs, of course, gain nothing by saving.  They need to put money to work or pay it out to shareholders.  So unless the economy scares them again, expect companies to start unleashing their moolah.  In other words: Brace yourself for a corporate spending spree that will fund acquisitions, upgrades of plants and equipment, share buybacks and more.  Think of it as a huge economic stimulus package brought to you by the private sector.  Their spending spree could be just what we need to keep the economy rolling—and will certainly benefit investors who know how to play it right.

Inside companies, the excess of cash flow over capital spending, measured as a ratio of those two amounts, rose to 1.17 as of Sept. 30^th, up from 0.88 just a year earlier.  That’s technical, but it’s also phenomenal.  It’s the highest this ratio has been during the past 50 years, says James Paulsen, the chief investment strategist at Wells Capital Management, and shows how much companies have been saving rather than spending.  “It’s a situation unlike any that I have ever seen,” says Jim Tierney, a portfolio manager at W.P. Stewart, which manages $1.5 billion in private accounts.  “We went through just an absolutely horrible situation in 2008.  The knee-jerk reaction was to pull back on anything discretionary.”

The same kind of buildup in cash has been happening around the world.  There are enormous amounts of money sitting on the sideline in Europe, China, India, and Brazil. It is key to understand that capital spending usually picks up well before the economy is running at full capacity.  With this understanding in mind, look behind the scenes to get a true barometer of progress on our current economy.

Tags: capital spending, economy, Great Depression, inflation, politics, stimulus package, stock market

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