U.S. companies built their cash reserves and short-term investment holdings at a much slower pace in the first quarter of the year than in the last quarter of 2018, according to the AFP Corporate Cash Indicators®. The CCI is a quarterly survey of senior corporate treasury and finance executives conducted by AFP and underwritten by BMO.
The latest CCI’s quarter-over-quarter index reading decreased 10 points to +3, signaling that organizations were accumulating cash reserves at a slower pace in the first quarter. The year-over year indicator increased by just one point from +12 to +13, indicating that cash balances were higher than a year ago.
Financial professionals signaled that they were looking to draw down their cash reserves during the first quarter, as the forward-looking indicator reported in the January 2019 CCI fell 12 points to a level of -5. However, their actions indicate they continued to build cash holdings. Their plans for the current quarter are similar. The forward-looking indicator in the latest CCI increased 15 points to a reading of +10, suggesting they will accumulate their cash holdings at a rapid pace.
These results are based on 155 responses from senior treasury and finance professionals this quarter.
“The federal government shutdown slowed economic growth in the early months of this year and deterred businesses from committing to deploying cash reserves,” said Jim Kaitz, president and CEO of AFP. “If the economy rebounds in the second quarter, financial leaders could be motivated to deploy cash and short-term investment holdings in the months to follow.”
“The slower build in cash reserves in the first quarter can be attributed to normal year-end seasonal patterns, because this is when a significant amount of liquidity is required to cover things like tax payments and shareholder distributions,” said Kevin Kane, head of commercial treasury and payment solutions at BMO. “Additionally, companies are reinvesting in their business—to expand capacity or improve efficiencies—and we’re just starting to see them spend some of that liquidity and act on those strategies, which is very encouraging.”
More results from the 2Q19 CCI:
- 36 percent of organizations held larger cash and short-term investment balances at the end of Q1 2019 than the previous quarter, while 33 percent reduced cash holdings in the past three months.
- 38 percent had greater cash and short-term investment balances at the end of Q1 2019 than one year earlier, while 25 percent held smaller cash balances relative to a year ago.
- 35 percent anticipate expanding cash and short-term investment balances over the next three months, while 25 percent plan to reduce balances.
- 9 percent were more conservative with their short-term investments in Q1 2019 and 8 percent were more aggressive.
April 2019 AFP Corporate Cash Indicators®
Change in cash and short-term investment holdings: 1Q19 v. 4Q18 = +3
Change in cash and short-term investment holdings over the past year: 1Q19 v 4Q18 = +13
Expected change in cash holdings during 2Q 2019 = +10
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 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.
AFP began collecting quarterly data in January 2011 and has now collected 34 data sets. See www.afponline.org/CCI for answers to frequently asked questions. The next set is slated to be published July 29, 2019.