Thursday, June 23, 2016

Buybacks: Good for the Economy?

American companies keep buying back their stock in increasing numbers.  For the 12 months that ended in March 2016, S&P 500 companies spent a record $589.4 billion on buybacks. That’s up 9.5 percent from the same 12-month period ended in March 2015, and breaks the record set in 2007 of $589.1 billion.

Cash reserves set a new record as well, up 1.6 percent to $1.347 trillion. This is good news for shareholders, of course. Total shareholder returns – dividends plus buybacks – in the first quarter set a record (for the second consecutive quarter) of $257.6 billion.

All that is good news for shareholder and stock prices - but maybe not such a good sign for the overall economy. The latest buyback numbers suggest that business have better things to do with their money than invest in their businesses.

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