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Survey: U.S. Firms Accumulated Cash In 2Q15 Due to Softening Business Confidence

AFP July 2015 Corporate Cash Indicators® finds that finance professionals are curtailing their spending and holding onto their cash reserves.

Bethesda, Md. -- American companies built short-term corporate cash balances at a far quicker pace during the second quarter of 2015, signaling a significant softening in their business confidence, according to the AFP Corporate Cash Indicators® (AFP CCI). 

AFP began collecting quarterly data in January 2011 and has now collected 19 data sets. See www.afponline.org/CCI for this quarter’s results and answers to frequently asked questions. The next set is slated to be published October 26, 2015.

July 2015 AFP Corporate Cash Indicators®
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Change in short-term investment holdings: 2Q15 v. 1Q15 = +18
Change in cash holdings: 2Q15 v. 2Q14 = +13
Expected change in cash holdings during 3Q15 = +11
Aggressiveness of short-term investments = 0 

The quarter-over-quarter index surged 13 points to +18, while the year-over-year indicator added seven points to +13. Finance professionals anticipate this pace of cash accumulation will continue through the summer. 

This is the third consecutive quarter where organizations’ actual behavior in strategically investing their corporate cash has not aligned with their expectations entering the quarter. This signals that despite their optimism entering the quarter, subsequent developments have caused companies to lack confidence in the global economy, making them hesitant to deploy and invest cash for the long term. The prevailing uncertainty can partly be attributed to the highly anticipated interest rate hike by the Federal Reserve Bank later this year, as well as to the financial crisis in Greece, the slump in China’s economy and markets, other instances of global unrest, and regulatory uncertainty in the U.S. 

The forward-looking indicator measuring expectations for changes in cash holdings in the current quarter swung from a reading of -1 for Q2 to +11 for Q3, point towards a cautious shift in strategy at some organizations. The indicator for short-term investment aggressiveness shed three points to a reading of 0 in the second quarter, indicating companies were maintaining a steady approach with their short-term investments.

“Treasury and finance professionals remain hesitant to reduce their organizations’ cash balances for two reasons. First, challenges in the global economy are causing headwinds abroad. Second, the timing and size of an interest rate hike in the U.S. is compounding uncertainty,” said AFP President and CEO Jim Kaitz. “Until these challenges are behind us, organizations will be reluctant to deploy cash.”

Published each fiscal quarter by the Association for Financial Professionals (AFP), the AFP CCI measures 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. The CCI is underwritten by Capital One Bank.

“In addition to the stronger than anticipated growth in short term balances, the results reflect a significant change in corporate sentiment this quarter," said Pasquale Nuzzo, Senior Vice President for Capital One Bank's Treasury Management Group. “U.S. companies are expecting growth in short term balances for the first time since July 2014, which may reflect uncertainty in the domestic and global economies.” 

Each quarter, AFP asks select members 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.

ABOUT AFP®
Headquartered outside Washington, D.C., the Association for Financial Professionals (AFP) is the professional society that represents finance executives globally. AFP established and administers the Certified Treasury Professional and Certified Corporate FP&A Professional credentials, which set standards of excellence in finance. The quarterly AFP Corporate Cash Indicators serve as a bellwether of economic growth. The AFP Annual Conference is the largest networking event for corporate finance professionals in the world.


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