Financial professionals anticipate deploying cash in the first quarter of 2019 in the form of capital expenditures, share buybacks, dividends and debt payments, according to the AFP Corporate Cash Indicators, a quarterly survey of corporate treasury and finance executives conducted by the Association for Financial Professionals and underwritten by BMO. The forward-looking CCI indicator, measuring expectations for changes in cash holdings in the first quarter of 2019, decreased 12 points from their predictions last quarter to a reading of -5.

In the seven years since AFP began collecting CCI data, business leaders have signaled their intent to use their cash every January but one. However, data for the following quarter shows that they have, in fact, done the opposite and held onto cash reserves and short-term holdings.

The latest CCI revealed that U.S. companies were accumulating cash reserves at a significant pace in both the past quarter and year. In the final three months of 2018, they did so at a slightly faster pace than in the previous quarter, with the index increasing five points to +13. The year-over year indicator also increased from +7 to +12.

"Despite a Federal Government shutdown and a turbulent stock market, there is some willingness to loosen purse strings," said Jim Kaitz, president and CEO of AFP. "Strong employment numbers and the effects of the Tax Cuts and Jobs Act are the likely forces behind this outlook. While it is encouraging that senior practitioners are looking to mobilize their cash, past CCIs indicate that they may not do so."

More results from the 1Q19 CCI:

38 percent of organizations held larger cash and short-term investment balances at the end of Q4 2018 than at the end of Q3 2018, while 25 percent reduced cash holdings in the past three months.

39 percent of organizations had greater cash and short-term investment balances at the end of Q4 2018 than one year earlier, while 27 percent held smaller cash balances relative to a year ago.

26 percent of organizations anticipate expanding cash and short-term investment balances over the next three months, while 31 percent plan to reduce these balances.

8 percent of organizations were more conservative with their short-term investments in Q4 2018 and 7 percent were more aggressive.

"Most businesses today have a positive outlook because the economic fundamentals are still very good in terms of measures like growth in demand, moderate inflation, consumer spending and solid corporate earnings" said Kevin Kane, Head of BMO's U.S. Commercial Treasury and Payment Solutions. "However, there are some concerns about recent volatility in the markets, on-going tension around trade and tariff issues, and uncertainty about where the Federal Reserve may go with additional rate hikes. Depending on how these factors play out, this could have an effect on business confidence, demand and investment spending."

January 2019 AFP Corporate Cash Indicators
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Change in short-term investment holdings: 4Q18 v. 3Q18 = +13
Change in cash holdings: 4Q18 v. 3Q18 = +12      
Expected change in cash holdings during 1Q 2019 = -5    
Aggressiveness of short-term investments = -1

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

Each quarter, AFP asks select members 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.