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U.S. Firms Remain Reluctant to Invest Cash Reserves

  • By Staff Writers
  • Published: 10/29/2018

U.S. companies continued to build cash reserves in the third quarter of 2018, and at a slightly faster pace than the previous quarter. Concerns over rising interest rates generating higher borrowing costs, as well as uncertainty over the upcoming midterm election, prodded finance executives to accumulate cash, according to the latest AFP Corporate Cash Indicators®, underwritten by BMO.

In the latest CCI, a quarterly survey of corporate treasury and finance executives conducted by AFP, U.S. businesses increased their cash accumulation slightly in 3Q18, as the quarter-over-quarter index reading increased three points to +8, while the year-over-year indicator decreased significantly from +16 to +7, signaling that organizations were accumulating cash reserves in both the past quarter and year.

Entering the third quarter, business leaders indicated they were looking to increase their cash reserves, though at a slow pace. In reality, it appears they increased cash at a higher rate than anticipated. The forward-looking indicator, measuring expectations for changes in cash holdings in the fourth quarter, increased four points from their predictions last quarter to a reading of +7, suggesting they plan to build their cash reserves. The results of the October 2018 CCI are based on 186 responses from senior treasury and finance professionals.

“Interest rates are rising, and the Federal Reserve has made it clear they will continue to rise for some time. Not surprisingly, organizations are responding by holding more cash in anticipation of higher borrowing costs that come with higher rates,” said Jim Kaitz, president and CEO of AFP. “This is the kind of steady, strategic course of action we have come to expect from treasury and finance executives.”

More results from the 3Q18 CCI:

  • 37 percent held larger cash and short-term investment balances at the end of Q3 2018 than at the end of Q2 2018; 29 percent reduced cash holdings in the past three months.
  • 34 percent had greater cash and short-term investment balances at the end of Q3 2018 than they had one year earlier, while 27 percent held smaller cash balances relative to a year ago.
  • 27 percent anticipate expanding cash and short-term investment balances over the next three months, while 20 percent plan to reduce these balances.

“We’ve seen many of our clients maintain or increase their cash holdings due to rising interest rates and economic factors; in our view, this represents an opportunity for organizations to reevaluate their near-term cash position  as well as the optimal level of liquidity reserves,” said Kevin Kane, Head of U.S. Commercial Treasury and Payment Solutions, BMO. “It’s vital to a finance function’s success to accurately forecast cash requirements and invest both operating and excess liquidity in a way that strikes the right balance between risk and return, and in a way that’s aligned with the overall strategic objectives of the firm.”

October 2018 AFP Corporate Cash Indicators®


Change in short-term investment holdings: 3Q18 v. 2Q18 = +8

Change in cash and short-term investment holdings over the past year: 3Q18 v. 2Q18 = +7            

Expected change in cash holdings during 4Q 2018 = +7

Aggressiveness of short-term investments = 0

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

AFP began collecting quarterly data in January 2011 and has now collected 32 data sets. See for answers to frequently asked questions. The next set is slated to be published January 28, 2019.

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