Cautious US firms bolster cash holdings

US businesses show no sign of deploying their cash any time soon, according to the latest Corporate Cash Indicators (CCI), a quarterly survey of corporate treasury and finance executives conducted by the Association for Financial Professionals (AFP).

The latest survey, taken last month reveals that companies accumulated short-term corporate cash at a quicker pace during the third quarter of 2016 than in the previous quarter, which AFP noted was likely due to geopolitical uncertainty on the presidential election, ahead of polling on November 8.

In Q3 the quarter-over-quarter index surged 11 points to +19, while the year-over-year indicator added 7 points to +21, suggesting that organisations across the US are extremely focused on building their cash reserves.

However, the forward-looking indicator measuring expectations for increasing cash during the fourth quarter of 2016 decreased from a reading of +16 to +4, signalling that many are going to continue accumulating cash in the three months October to December, but at a slower pace than last quarter.

Over the first three quarters of 2016, US organisations indicated that they planned to accumulate cash during the respective quarter and they have done so, highlighting their cautious approach to deploying cash.

The indicator for short-term investment aggressiveness shed 4 points to a reading of -5 in Q3; indicating companies were leaning towards a more conservative approach with their investments. The more conservative posture being adopted could be a result of the shift from prime money funds to US government funds.

Among the main findings of the October 2016 CCI:

  • Change in cash and short-term investment holdings (over past quarter) – Q316 versus Q216: +19.
  • Change in short-term holdings in the past year – Q316 versus Q315: +21.
  • Expected change in cash holdings during Q416: +4.
  • Aggressiveness of short-term investments: -5

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

“The October CCI shows that corporates are taking a wait-and-see approach when it comes to cash deployment, likely because of concerns over political uncertainty at home and abroad,” said AFP president and chief executive officer (CEO) Jim Kaitz. “Absent a strategic priority, organisations are holding on to their cash.”

AFP began collecting quarterly data in January 2011 and has now collected 24 data sets. The Association asks select senior corporate practitioners 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.

Participants manage their companies’ cash and short-term investment portfolios and are fully aware of their companies’ liquidity needs and business strategies. Since corporate decisions to grow/shrink the size of cash and short-term investment portfolios reflect their business outlook and direction, changes reported by this broad group of companies are indicators of economic activity.

Published quarterly, the CCI measures changes in corporate cash holdings quarter-to-quarter and year-over-year and also the expected change in short-term investment and cash accumulation in the coming quarter.


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