Survey: US Businesses Hoarding Less Cash, Spending More

US businesses grew more confident during the opening months of 2014, significantly slowing the pace of cash accumulation, according to the April 2014 AFP Corporate Cash Indicators™ (AFP CCI).

Calculated each quarter by the Association for Financial Professionals (AFP) and underwritten by State Street Global Advisors, the AFP CCI measure changes in corporate cash holdings quarter-to-quarter and year-over-year, as well as the expected change in short-term investment and cash accumulation in the coming quarter.

Compared to the prior quarter and the prior year, corporate cash accumulation slowed significantly. For first quarter 2014, the indicator shows +4, down 15 points from the January reading. The year-over-year indicator was also down 15 points to +5.

Meanwhile, the indicator for short-term investment aggressiveness jumped three points during the quarter to a reading of +10, up six points from a year earlier. This is an all-time high for the metric, as treasurers exhibit less risk sensitivity and a greater appetite for return. Aggressiveness may also reflect an expansion of asset classes and credit quality parameters, as well as a willingness to invest in securities with maturities further out on the yield curve.

Kevin Roth, AFP’s managing director of research, pointed to the spike in short-term aggressiveness as being particularly significant. “Financial professionals appear to be shifting away from ‘safety’ to searching for yield as a goal of managing corporate cash holdings,” he said.

Looking ahead, corporate treasurers anticipate seeing more cash from operations in the spring. The forward-looking indicator measuring expectations in the change of cash holdings jumped 13 points to a reading of +12.

“Businesses have been expanding so they have been generating operating cash,” said Jim Kaitz, AFP’s president and chief executive officer (CEO). “The difference we’re seeing is that they are not holding on to that cash. We expect this trend to continue in the coming quarter.”

April 2014 AFP Corporate Cash Indicators™

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Change in cash holdings: 1Q14 v. 4Q13 = +4

Change in cash holdings: 1Q14 v. 1Q13 = +5

Expected change in cash holdings during 2Q14 = +12

Aggressiveness of short-term investments = +10

The indicators measure recent and anticipated changes in corporate cash balances by calculating increase percentage minus decrease percentage.

Each quarter, AFP asks select members representing a broad cross section of US businesses the same questions: whether their company’s short-term holdings increased or decreased in the past year and past quarter; whether investment selections for those holdings changed; and whether they expect cash holdings to increase or decrease in the coming quarter. AFP member companies have agreed to participate in this ongoing study on a long-term basis.

AFP began collecting quarterly data in January 2011 and has now collected 14 data sets. The next set is slated to be published July 28, 2014.

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