U.S. Firms Hoarded Cash in 2Q16 Due to Concerns About Brexit, Global Economy

Concerned about Brexit, a tepid domestic economy and continued sluggishness in the global economy, American companies in the second quarter of 2016 returned to accumulating cash at a fast pace, according to the AFP Corporate Cash Indicators (AFP CCI).

In fact, American firms accumulated short-term corporate cash balances at a far quicker pace during the second quarter of 2016 than in the previous quarter. The quarter-over-quarter index surged 9 points to +8, signaling a significant softening in organizations’ business confidence.

The year-over-year indicator increased by 4 points to +14, suggesting that organizations continue to focus on building their cash reserves.

Finance professionals anticipate that cash accumulation will continue at an accelerated pace through the summer. The forward looking indicator measuring expectations for changes in cash holdings during the third quarter of 2016 increased from a reading of +7 to +16, the highest reading since July 2011 and the second highest reading since AFP began tracking this data in January 2011.

“The July CCI shows that corporates have stepped on the brakes amid growing economic and political uncertainty and are expecting to accumulate more cash in the quarter,” said AFP President and CEO Jim Kaitz. “Unless there is a clear opportunity, organizations will remain reluctant to deploy their cash.”

The CCI measure for short-term investment aggressiveness indicated a slightly more conservative investment posture as compared to last quarter, decreasing from a reading of +1 to -1 during the second quarter of 2016. 

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