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Survey: U.S. Firms Hold Onto Cash as Confidence Wanes

  • By Staff Writers
  • Published: 7/27/2015
U.S. companies built short-term corporate cash balances at a far quicker pace in the second quarter of 2015, according the July AFP Corporate Cash Indicators® (AFP CCI), underwritten by Capital One Bank. The latest indicators signal a significant softening in financial professionals’ business confidence.

“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.”

The quarter-over-quarter index surged 13 points to +18. Forty-three percent of organizations held larger cash and short-term investment balances at the end of Q2 2015 than they did at the end of Q1 2015 while 25 percent shed cash during the three months.

Thirty-nine percent of organizations had greater cash and short-term investment balances at the end of the second quarter than they had one year earlier, while 26 percent held smaller cash balances relative to a year ago. The difference of +13 is seven points more than the previous quarter’s reading and 14 points less than the Q2 2014 reading. Finance professionals anticipate this pace of cash accumulation will continue through the summer.

The forward looking indicator measuring expectations for increasing cash during the third quarter in 2015 swung from a reading of -1 in Q2 to +11, pointing towards a cautious shift in strategy at some organizations. Fully 34 percent of organizations anticipate expanding cash and short-term investment balances over the next three months, while 23 percent plan to reduce these balances.

The indicator for short-term investment aggressiveness shed three points to a reading of zero in the second quarter, indicating companies are leaning towards a more conservative approach with their investments. The zero amount is down two points from a year ago.

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

“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.”

The AFP CCI are produced by the AFP Research Department as forward-looking measures of corporate cash and short-term investment holdings and of expected business conditions. On the opening days of each quarter, AFP asks select members about the size and make up of their short-term investment holdings. AFP has scheduled the release of the next edition of the AFP Corporate Cash Indicators® for October 26, 2015.

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