During the second quarter of 2019, U.S. companies remained apprehensive about the economy. Similar to last quarter, they continued to build cash and short-term investment holdings, according to the AFP Corporate Cash Indicators®, (CCI) a quarterly survey of senior corporate treasury and finance executives conducted by AFP.
The latest CCI’s quarter-over-quarter index reading increased 5 points to +8, signaling that more organizations were accumulating cash reserves in the second quarter. The year-over year indicator decreased two points from +13 to +11.
A greater share of respondents anticipate that their organizations will accumulate cash throughout the summer; the forward-looking indicator measuring expectations for changes in cash holdings during the third quarter of 2019 increased two points from a reading of +10 to +12. Also, in the second quarter of 2019, organizations’ cash behavior aligned with their expectations entering the quarter. Meanwhile, the indicator for short-term investment aggressiveness decreased two points, moving from -1 to -3, signaling a continued conservative posture with cash and short-term investments.
These results are based on 168 responses from senior treasury and finance professionals this quarter.
“Despite strong employment numbers and a tight job market, business leaders continued their reluctance to deploy cash and short-term investments in the second quarter,” said Jim Kaitz, president and CEO of AFP. “The threats of a trade war with China, escalating immigration issues at the U.S. border and a looming Brexit are contributing to the unease of treasury and finance professionals.”
“Even with so many unpredictable macro factors, the positive story is many companies are experiencing steady growth, have worked hard to become more efficient and manage expenses, and as a result are building liquidity,” said Kevin Kane, head of U.S. Treasury and Payment Solutions at BMO. “Treasurers and CFOs need to remain diligent when it comes to managing their cash position, including finding the right balance between building reserves as a hedge against uncertainty and deploying funds to take advantage of strategic opportunities, while also factoring in changes to the yield curve.”
July 2019 AFP Corporate Cash Indicators®
Change in cash and short-term investment holdings: 2Q19 v. 1Q19 = +8
Change in cash and short-term investment holdings over the past year: 2Q19 v. 1Q19 = +11 Expected change in cash holdings during 3Q 2019 = +12
Aggressiveness of short-term investments = -3
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.
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.
AFP began collecting quarterly data in January 2011 and has now collected 35 data sets. See www.afponline.org/CCI for answers to frequently asked questions. The next set is slated to be published October 28, 2019.