It’s been widely reported that some of America’s biggest companies are hoarding record amounts of cash amid an anemic economic recovery, and the logical assumption is that it’s locked away in the bank, waiting to be spent sometime in the future.

After all, many executives still aren’t hiring very much. U.S. unemployment remains high. Profits at many companies have surged following huge layoffs and other deep cuts. And for the seventh straight quarter, non-financial companies in the S&P 500 index reported that cash and cash equivalents during the three months ending in June surged to $842.5 billion – reflecting more than 11% of their value and five times their annual dividend payments.

To some, the record levels seem almost unjustifiable, since business investment in corporate America makes up a large enough chunk of GDP to really drive growth. If they don’t spend, the economy can’t grow.

But the story of companies sitting awash in cash is more complex. Just because cash levels are high doesn’t necessarily mean companies are sitting idle on a mountain of greenbacks.

In fact, private investment has fared better than consumer spending, contributing to a rebound from the longest recession in recent history. Investment dropped to negative levels (far more than consumer spending) during the recession, but turned positive in mid-2009. During the three months ending in June 2010, investment rose 26.2% — driven mostly by a surge in companies buying up new equipment and software.

Harvard University political economist Benjamin Friedman says the increases are significant – particularly the rise in purchases of new equipment, which typically makes up about two-thirds of business investment. Although equipment and software investment fell 31.6% during the first quarter of 2009, it has steadily picked up each quarter to a growth rate of 24.8% during the second quarter of 2010.

Last week, executives at Caterpillar (CAT) told shareholders it expected the uptick in demand for equipment and machinery to continue through the end of the year.  The world’s largest maker of construction and mining equipment raised its full-year earnings forecast with profit for 2010 expected to be $3.80 to $4 a share – up from a July forecast of $3.15 to $3.85.

Although construction machinery in the U.S. fell dramatically by nearly 80% between the company’s peak quarter in 2006 and its slump in late 2009, Peoria, Illinois-based Caterpillar reported that customers are buying new machines to replace old and aging fleets. Also, dealers are buying more machines for rental fleets.

“Used equipment prices have gone up and rental utilization has gone up,” Caterpillar’s Mike DeWalt, investment relations director, told shareholders as the company presented an upbeat third quarter earnings report. “So that should actually be a very positive forward-looking group of indicators.”

The investing rebound might not be enough to reduce unemployment, but it nevertheless disproves the perception that companies aren’t doing much investing.

Take, for instance, Cisco Systems (CSCO), which S&P reported having the largest holdings of cash on hand out of all 500 companies in the index. The San Jose, CA-based company, which sells consumer electronics, networking and communications technology and services, holds $39.9 billion, which represents 33.8% of its market value and five times its last year’s worth of buybacks, according to S&P.

Overseas cash

But the majority of those funds, about $32 billion recorded during the last quarter, are earnings from overseas markets and subject to taxes if transferred to the U.S. So Cisco, like other cash-rich tech companies including Microsoft (MSFT), has been borrowing at record-low interest rates. The company has made six acquisitions in cash during the 2010 fiscal year ending in July, including Starent Networks and Tandberg, each costing about $3 billion. What’s more, the company recently announced it would begin paying dividends to shareholders — a rare move for a technology company.

The problem is the scale of investments seen, although substantial, haven’t been big enough to shrink unemployment.

“Given the current uncertainty over economics, politics, expenditures, taxes, and consumer actions, my unfortunate observation is that from a corporate view it is difficult to find fault with their prudence,” says Howard Silverblatt, S&P’s senior index analyst for its Index Services unit.

To be sure, risks are rising that business investment may cool in the coming months. Orders for non-military capital equipment including computers and machinery fell 0.6% in September after a 4.8% rise in August amid a slowdown in manufacturing, the Commerce Department reported Wednesday.

Such orders are usually an indicator of future business investment, and the fall in orders underscores just how perplexed U.S. companies are with today’s economy. It would be an overreaction to blame executives for their prudence, given uncertainties surrounding everything from economics, politics and taxes.

Business investment might have recovered better than consumer spending. But it appears executives are just as lost as the consumer.