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US businesses accumulate cash amid global trade tensions

Quarterly research by the Association of Financial Professionals (AFP) has found that the first three months of 2018 saw US businesses continue to accumulate cash and short-term investment holdings at a slightly higher pace than the previous quarter. Accumulating cash is a sign that businesses expect difficult times ahead and the AFP believes that trade wars with China, Mexico and Canada, as well as rising geopolitical concerns, have contributed to a pessimistic outlook among US firms.

The AFP's Jim Kaitz said: “The optimism generated from corporate tax reform seems to have done little to persuade organizations to spend their cash during the early months of 2018. The uncertainty stemming from threats of a trade war and geopolitical tensions have concerned treasury and finance executives. Washington must deliver on its promise of less regulation, alleviate uncertainty and ease geopolitical crises for businesses to regain their confidence in the economy and begin to deploy their cash.”

The AFP’s Corporate Cash Indicators report is based on a quarterly survey of US-based financial professionals. The survey shows whether the respondents have increasing or decreasing levels of cash holdings (and expected cash holdings). The results are used to calculate an indicative value that shows whether, overall, businesses are ready to deploy cash (suggesting optimism of improving economic condition) or whether they want to store cash reserves for difficult conditions.

  • 44 per cent held larger cash and short-term investment balances at the end of Q1 2018 than they did at the end of Q4 2017, while 26 per cent reduced cash holdings in the past three months. 
  • 37 per cent had greater cash and short-term investment balances at the end of Q1 2018 than they had one year earlier, while 20 per cent held smaller cash balances relative to a year ago. 
  • 24 per cent anticipate expanding cash and short-term investment balances over the next three months, while 25 per cent plan to reduce these balances.
  • 13 per cent were more aggressive with their short-term investments in Q1 2018 while 2 per cent were more conservative. The +11 reading for this index is the highest on record since AFP began collecting this data in January 2011.

The AFP's graph, below, shows how 2018 has begun with a negative outlooks, showing that firms are not expecting to deploy more cash, with concerns about geopolitical and trade tensions hampering business optimism.

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This item appears in the following sections:
Cash & Liquidity Management
Cash & Liquidity Mngm in North America
Releasing Trapped Cash

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