U.S. Businesses Plan to Deploy Cash as Optimism Rises

U.S. businesses are optimistic about the economy—so much so that they expect to deploy their short-term cash at the fastest pace since January 2015.

According to the latest Corporate Cash Indicators, a quarterly survey of corporate treasury and finance executives conducted by the Association for Financial Professionals, the forward-looking indicator measuring the expected change of cash holdings during the first quarter of 2017 fell 11 points to a reading of -7. This was six points below its reading from a year ago, and its second lowest reading since AFP began collecting this data in January 2011.

In addition, the indicator for short-term investment aggressiveness gained three points in the last quarter, moving from -5 to -2, although still signaling a more conservative posture with cash and short-term investments.

The results are based on 227 responses received in January 2017.

The CCI also found that U.S. businesses continued to build their cash reserves during the last quarter of 2016, but the pace of accumulation was slightly slower than the previous quarter, decreasing three points to +16, while the year-over-year indicator decreased two points to +19.

The CCI measure for short-term investment holdings during the current quarter decreased from +4 in October 2016 to -7 in January 2016.

The lower the index reading, the greater the net percentage of organizations expected to spend cash and short-term investment holdings during the current quarter.

“The January CCI shows that corporates are optimistic about 2017 and the economic impact of the new Administration and Congress. They sense an environment that is more business friendly and, as a result, are more willing to deploy corporate cash in the form of capital expenditures,” said AFP President and CEO Jim Kaitz.

The indicators measure recent and anticipated changes in corporate cash balances by calculating increase percentage minus decrease percentage.

Each quarter, AFP asks select members and prospects 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.

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.

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