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Illustration: Eniola Odetunde/Axios

U.S. companies are holding off on major purchases and investments, paying down debt and stacking up cash as they look to position for an expected economic downturn in 2020.

Why it matters: Firms are trying to protect themselves from a recession, but their spending pullback could weaken the overall economy — and potentially help precipitate the very conditions they fear.

  • Business investment has fallen for six months straight and declined by 3% in the third quarter, the largest drop since 2015.
  • The retrenchment by businesses helped turn Wednesday's U.S. workforce productivity report — a key economic metric that compares goods-and-services output to the number of labor hours worked — negative for the first time in four years.

What's happening: A slew of traditional recession indicators have shown up: The yield curve has inverted, the manufacturing and housing sectors have weakened, and income inequality has spiked to the highest level on record.

The big picture: U.S. corporate balance sheets are holding more than $2.2 trillion in cash, according to the latest figures from global accounting firm PwC. It's the highest number in decades.

  • Companies have added to their holdings since that survey and are "absolutely" getting themselves prepared for the downturn, PwC's U.S. deals leader Colin Wittmer tells Axios.
  • "They're building cash reserves in their balance sheets like we haven't seen in a long time. There's just an incredible amount of cash there."

Investors also are getting ready for the good times to end.

  • Data from the Investment Company Institute shows that even though the stock market has risen by nearly 25% this year, investors have been net sellers of stocks, pulling $100 billion out of equity funds.
  • They've moved more than $3.5 trillion into money market funds, which are essentially savings accounts; it's the highest level since 2009.

On one hand: "All the preparation for the end of the cycle could forestall the end of the cycle," John Bilton, JPMorgan's head of global multi-asset strategy, tells Axios.

On the other hand: There are still risks, particularly the rising level of debt, which could portend a bubble.

  • "We don't have overbuilt houses, we haven't overdone capital spending. There's no boom, so hard to get to a bust," JPMorgan Asset Management's chief global strategist David Kelly adds.
  • "I do think it gives a stability to the real economy, but I don't think it lends a further stability to the financial side of things, necessarily. It's a more complicated story."

Go deeper

Thousands without power as "hazardous" winter storm lashes East Coast

Winter view from Charlotte as winter storm Izzy creates dangerous conditions in Charlotte, N.C. on Jan. 16. Photo: Peter Zay/Anadolu Agency via Getty Images

A major winter storm was lashing much of the East Coast on Sunday, causing widespread power outages and disrupting travel over the holiday weekend.

The big picture: Heavy snow and ice accumulations are "likely to produce hazardous travel," downed trees and more power outages from the Mid-South to the Northeast, per the National Weather Service. Some parts of the U.S. can expect to see up to a foot of snow through Monday.

Updated 4 hours ago - Science

Volcanic eruption in Tonga caused "significant" damage

This satellite image of the eruption on Jan. 15 taken by Himawari-8, a Japanese weather satellite operated by Japan Meteorological Agency and released by National Institute of Information and Communications Technology (NICT). Photo: NICT via AP

Significant damage has been reported in Tonga following an undersea volcanic eruption on Saturday, which covered the Pacific nation in ash and cut off communication lines.

Driving the news: The eruption triggered tsunami warnings across Tonga's islands and in other regions, including the West Coast of the U.S. and New Zealand.

5 hours ago - World

North Korea launches 4th suspected missile test this month

A news broadcast in Seoul, South Korea, of an apparent North Korean missile test on Monday morning local time. Photo: Jung Yeon-je/AFP via Getty Images

North Korea's military fired "two suspected short-range ballistic missiles" eastward from Pyongyang on Monday morning local time, per South Korean and Japanese officials.

Why it matters: The fourth such launch since Jan. 5 comes days after North Korea's military warned of "stronger" action if the U.S. moved to have more sanctions imposed on the country.