NEW YORK (Reuters) - American companies are now sitting on record mountains of cash in an indication of deep worries about the economy's future.
Even though analysts forecast a return to U.S. economic growth by the third quarter, companies have yet to show any major signs of rehiring or spending.
And with consumers also hoarding cash at near record levels, a cautious stance by companies could add to worries about the sustainability of an economic recovery.
Earnings growth could be relatively flat as cash piles build, but then surge once consumers, and businesses, become more confident in the economy, analysts said.
The increased cash holdings are "negative in that they're not going to lead a recovery, but would react to evidence that there's an improving economy," said Jim Awad, managing director at Zephyr Management in New York.
It provides further evidence that "businesses are just holding back," said Fred Dickson, market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.
"There's still a very high level of anxiety regarding the timing and speed and sustainability of an economic recovery." he said.
Standard & Poor's 500 companies' cash levels, which have stood at around $600 billion to $665 billion since 2004, jumped to $700 billion in the second quarter, S&P analyst Howard Silverblatt said.
He said the amount covers the entire S&P 500 minus financials, utilities and transportation companies, which carry high cash reserves as a normal part of business.
Information technology companies held the largest amount of cash at $240 billion, accounting for 34 percent of all the cash holdings, followed by health care, with $209 billion, he said.
"Companies are being very careful about spending money," Silverblatt said. The positive is that companies now have a "war chest for when they believe things are better," he said.
While bottom-line earnings improved in the second quarter from the first quarter, revenue did not, he noted.
Earnings for S&P 500 companies now are estimated to decline 27.8 percent from a year ago, according to Thomson Reuters. That's better than the decline of 35.5 percent in the first quarter of this year.
Revenue, on the other hand, went from a 10.6 percent decline in the first quarter to a drop of 14.6 percent in the second quarter, according to Thomson Reuters data.
Companies are "still cutting to the bone," said Doug Roberts, chief investment strategist at Channel Capital Research.com in Shrewsbury, New Jersey. "The real question will be: 'At what point do you start looking for revenue growth?'"
Reports last week showed weak consumer sentiment in August and an unexpected decline in July retail sales, adding to worries about how much the consumer will help in a recovery.
"Corporations are still in survival mode, cutting costs, preparing for the worst," Awad said. He said they're likely to remain in that mode until "it's clear the hopeful consensus on Wall Street about a sharp improvement in economy in the third and fourth quarters ... is accurate."
Economists are forecasting GDP growth in the third quarter, partly because companies need to rebuild inventories to keep their businesses running and as the holidays approach.
Meanwhile, S&P 500 companies' earnings are forecast to show a turnaround by the fourth quarter of this year.
Earnings for the third quarter are forecast to decline 20.7 percent, Thomson Reuters data showed.
(Reporting by Caroline Valetkevitch; Editing by Jan Paschal)