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US companies to deploy cash as business confidence grows in Q1

An indicator of business confidence suggests that business executives are increasingly confident of economic growth in the US during Q1. The Association for Financial Professionals' (AFP's) Corporate Cash Indicator survey for January 2017 found that more US businesses are expecting to deploy cash in the first quarter, as the trend for accumulating cash reserves decreases. The forward-looking indicator measures the difference between the percentage of those planning to reduce cash and short-term balances in the next three months (30 per cent) and companies planning to expand those balances (23 per cent). The overall indicator for the first quarter of 2017 therefore fell to -7.

If the survey's indicator is negative, this suggests growing business confidence. The following graph shows the net percentage of companies expecting cash and short-term investments to increase in current quarter.

The AFP's report said: “It appears that US companies are willing to loosen their purse strings meaningfully for the first time since January 2015. With new leadership in the White House and a Republican majority in Congress, there is more confidence that campaign promises of corporate tax reform, less regulation and increased infrastructure spending will be fulfilled. Additionally, the Federal Reserve signaled signs of optimism by approving a rate increase late last year.”

The AFP's president and CEO Jim Kaitz said: “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.”

CTMfile take: Some US companies seem to be taking comfort from the prospect of relaxed business and banking regulations under the new White House administration. However, the economic, political and social environment seems likely to be unstable as Trump's impact on cross-border trade remains to be seen and many large corporates publicly disagree with some of his policies.

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