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Study: Finance Executives Are Less Upbeat About the Economy in 2Q17, Return to Hoarding Cash

AFP April 2017 Corporate Cash Indicators® revealed companies reversed course from last quarter and built their cash reserves.

April 24, 2017 -- Bethesda, Md. -- Finance executives are less optimistic about the economy entering the second quarter of 2017 than they were entering 2017, according to the AFP April 2017 Corporate Cash Indicators®.

AFP began collecting quarterly data in January 2011 and has now collected 26 data sets. See www.afponline.org/CCI for answers to frequently asked questions. The next set is slated to be published July 31, 2017. For any press queries, please contact Melissa Rawak at mrawak@afponline.org.

In the latest CCI, a quarterly survey of corporate treasury and finance executives conducted by the Association for Financial Professionals, U.S. businesses continued to build their cash reserves in the first quarter of 2017. This was not what they anticipated at the beginning of the year. Last quarter, finance executives suggested that they were, for the first time in many months, willing to deploy cash in Q1. However, new numbers reveal they did otherwise. The quarter-over-quarter index of +15, which measures actual changes in cash balances during the quarter, contrasts with the anticipated change for Q1 of -7 that was reported last quarter. The +15 reading was just one point lower than a year ago. The year-over-year indicator increased by 6 points to +16, showing that companies have continued to accumulate cash over the last 12 months.

The forward-looking indicator, measuring the expected change of cash holdings during the second quarter of 2017, increased 10 points to a reading of +3, signaling a continued softening in finance professionals’ business confidence through the spring and an anticipated increase in cash holdings in the coming quarter. This was four points below its reading from a year ago.

Meanwhile, the indicator for short-term investment aggressiveness gained one point in the last quarter moving from -2 to -1, continuing to signal a more conservative posture with cash and short-term investments. These results are based on 212 responses.

In early 2017, for the first time in many months, finance professionals displayed a new sense of optimism about the economy, which AFP attributed to a new president promising a pro-business agenda. However, continued gridlock in Washington, plus heightened geopolitical risk in Syria and North Korea likely dampened the mood of finance executives.

“The rapid change in finance executives’ outlook comes as little surprise given the sudden rise in economic and political uncertainty,” said Jim Kaitz, president and chief executive of AFP. “Corporate treasury and finance executives are responding quickly, and prudently, to the new environment.”

April 2017 AFP Corporate Cash Indicators®

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Change in cash and short-term investment holdings (over past quarter): 2Q17 v. 1Q17 = +15

Change in short-term holdings in the past year: 2Q17 v. 1Q17 = +16         

Expected change in cash holdings during 2Q17 = +3

Aggressiveness of short-term investments = -1

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

Each quarter, AFP asks a select group of corporate practitioners representing a broad cross section of U.S. 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.

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.

About AFP®

Headquartered outside Washington, D.C., the Association for Financial Professionals (AFP) is the professional society committed to advancing the success of its members and their organizations. AFP established and administers the Certified Treasury Professional and Certified Corporate FP&A Professional credentials, which set standards of excellence in finance. Each year, AFP hosts the largest networking conference worldwide for over 6,500 corporate finance professionals.

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