Business balance sheets showed a mixed picture
Large and small businesses were on different tracks in 2011. Balance sheets of larger companies were mostly liquid because they had already accomplished considerable deleveraging. And they were generating cash because of cost-cutting efforts and productivity enhancements. By the end of the year, nonfinancial corporations held a record $672 billion in cash assets, according to the Federal Reserve Board.
One reason for this liquidity is that larger businesses worked hard to increase productivity and cut costs. As a result, even amid modest overall demand growth, large businesses were profitable and positioned to stay that way by continuing to focus investments. In the fourth quarter of 2011, corporate profits from current production reached an all-time high of nearly $2 trillion. See the chart.
Business investment grew at a reasonably strong pace during much of 2011. However, based on anecdotal information from Atlanta Fed business contacts, that spending continued to be focused mostly on productivity enhancements rather than on expansion or hiring.
The experience of small firms throughout much of 2011 differed from that of the larger businesses. Smaller firms continued to struggle with sluggish sales. Demand for credit by small firms increased considerably in the fourth quarter of the year, which suggests that the year ended on a more promising note for small companies. However, according to the Federal Reserve's 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices, lending standards remained essentially unchanged.
With regard to balance sheet strength, liquidity, and financial position, it was better to be bigger in 2011.