Cash and short-term holdings have been accumulated at a faster pace than in previous quarters as uncertainty reigns. But the latest AFP Corporate Cash Indicator survey hints at increasing confidence.
As a determinant of economic activity, corporate cash levels are a solid indicator for many stakeholders. With some sound economic fundamentals in place in the US economy, the latest AFP Corporate Cash Indicators (CCI) present many of its businesses as having a more positive outlook. For now.
The last few years have seen these companies accumulating cash reserves at a significant pace; a sign of their disquiet. In the final three months of 2018, they did so at a slightly faster pace than in the previous quarter.
However, the latest CCI, based on 194 responses from senior treasury and finance professionals (and representing a broad cross-section of US business), reveals expectations for changes in cash holdings in the first quarter of 2019.
With a decrease of 12 points from last quarter predictions to a reading of -5, respondents seem to be suggesting a desire to deploy their cash in the first quarter of 2019, through capital expenditures, share buybacks, dividends and debt payments.
Sentiment by numbers
Each quarterly CCI survey asks the same questions: have short-term holdings increased or decreased in the past year and past quarter; have investment selections for those holdings changed; and will cash holdings increase or decrease in the coming quarter?
The latest results show that 38% of respondents were holding larger cash and short-term investment balances at the end of Q4 2018 than at the end of Q3 2018. But 25% had reduced their cash holdings in the past three months. In year-on-year terms, 39% of organisations had greater cash and short-term investment balances at the end of Q4 2018 than the same period a year earlier. Some 27% held smaller cash balances relative to a year ago.
Some 26% of organisations anticipate expanding cash and short-term investment balances over the next three months, but 31% plan to reduce these balances. A more conservative view was held by 8% of respondents regarding their short-term investments in Q4 2018, while 7% said they were being more aggressive.
In the balance
Based on current findings, Jim Kaitz, President and CEO of AFP, notes that despite the ongoing Federal Government shutdown and a turbulent stock market, “there is some willingness to loosen purse strings”. He sees strong employment numbers and the effects of the Tax Cuts and Jobs Act as being “the likely forces” behind this Q1 outlook.
However, Kaitz continues, “while it is encouraging that senior practitioners are looking to mobilise their cash, past CCIs indicate that they may not do so”. In the seven years since AFP began collecting CCI data, every January, bar one, businesses have signalled their intent to use their cash. Indeed, data for the following quarter shows that they have done the opposite, holding onto cash reserves and short-term holdings.
With increased market volatility, trade tensions between the US and China, and uncertainty around the Fed’s appetite for further rate hikes in 2019, US businesses may yet pedal back on this quarter’s more positive outlook.
