As US companies spend billions repurchasing shares, employees and economy may pay the price

The Boston Globe reports:

major companies are similarly spending much of their profits repurchasing their own shares, making April thebiggest month for buyback announcements in US history.

This stock buyback boom, while obscure to much of the public, has become one of the most pervasive and divisive practices in corporate America. It affects jobs, investment, and the health of the economy, all in the search for higher share prices. It is also a major driver of the widening economic divide in this country, which could make it a prominent issue in the 2016 presidential election.

It boils down to a basic question being asked more and more these days, and not only by workers in Boxborough: Why are so many companies spending record sums of money buying back their shares instead of reinvesting more of their profits in their business and their workers?

The raw numbers are startling and revealing. Since the early 1980s, the nation’s top publicly traded companies have gone from having 70 percent of their profits available to reinvest in their business to just 2 percent in 2014.

There's more:

But most stock is owned by the nation’s wealthiest 10 percent;about half of Americans don’t own a single share, directly or indirectly.And buybacks can squeeze the economy in another way: Dollars not reinvested by a company in expanding their business can also mean fewer jobs in construction and other fields.

Supporters of buybacks stress that the nation’s top non-financial companies spent a record amount on capital expenditures in 2014 before declaring their profits. They say that the best way to benefit the average non-stock-holding American is to make sure companies are financially strong enough to withstand Wall Street corporate raiders who might have less allegiance to employees. And they say that shareholders spread wealth throughout the economy.

“The reason [companies] buy back their stock with cash is because they don’t have productive ways to invest the money,” said Peter Morici, a University of Maryland business professor who has written about buybacks. Boosting the share price through buybacks enables “individuals to reinvest in the economy more productively.”

The article of the day.