U.S. businesses show no sign of deploying their cash any time soon, according to the latest AFP Corporate Cash Indicators® (AFP CCI). Published each fiscal quarter, 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 quarter-over-quarter index surged 11 points to +19, while the year-over-year indicator added 7 points to +21, suggesting that organizations 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, signaling that organizations are going to continue accumulating cash this fall, but at a slower pace than last quarter.
In the first three quarters of 2016, organizations indicated that they planned to accumulate cash during the respective quarter and they have done so, highlighting the cautious approach of organizations to deploying cash. The indicator for short-term investment aggressiveness shed 4 points to a reading of -5 in the third quarter, 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 government funds.
“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 CEO Jim Kaitz. “Absent a strategic priority, organizations are holding on to their cash.”
October 2016 AFP Corporate Cash Indicators®
Change in cash and short-term investment holdings (over past quarter): 3Q16 v. 2Q16 = +19
Change in short-term holdings in the past year: 3Q16 v. 3Q15 = +21
Expected change in cash holdings during 4Q16 = +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.
AFP began collecting quarterly data in January 2011 and has now collected 24 data sets. See www.afponline.org/CCI for answers to frequently asked questions. The next set is slated to be published January 30, 2017.