Important New Finance Data To Watch

The Association for Financial Professionals is having its annual conference this week in Los Angeles . I stopped by Sunday afternoon to get a sense for what Corporate Treasurers and CFOs are thinking about the current financial markets.

While picking up my media credentials, I had a long talk with Judy Schub, who is the Managing Director for Public Policy at AFP. She convinced me that the data being collected by AFP is some of the most significant corporate intelligence with regard to corporate financial thinking. In the current financial crisis, it is very important to monitor what corporations are doing with their cash. AFP is probably the best source for this data.

As I wrote in the column, How To Monitor The Economy: "After market prices, the best source for information about the economy is raw data. In the raw data camp, we put such items as auto sales, newspaper advertising, money supply numbers etc. This information, often on an industry by industry basis, or better yet when it is obtained on a company by company basis, generally, is private sector data."

AFP is putting together the exact type of data that I envisioned when I wrote the above. In the current market, individuals and corporations are hoarding cash. AFP will likely be one of the best first sources, if not the first, to identify when this hoarding peaks.

The hoarding of cash has caused a slowdown in hiring at many firms, reduced capital spending and has caused some firms to draw on existing credit facilities to build cash. According to a survey from AFP released September 30, forty percent of finance executives report that their organizations have less access to short-term credit than they did one month ago, with 16 percent reporting significantly less or no access to short-term credit. As a result, 62 percent of finance executives report that their organizations have already taken defensive actions. These organizations have:

Moved all or most of short-term investments to bank deposits and U.S. Treasuries (41 percent)

Reduced capital spending (37 percent)

Shortened the duration of their investment portfolios (29 percent)

Frozen or reduced hiring (26 percent)

Drawn on existing credit facilities to build cash (26 percent)

Considered staff reductions or layoffs (22 percent)

The number of firms that have moved their short-term investments to bank deposits and U.S.Treauries is quite remarkable. These numbers have to be monitored.

Thus in terms of what to monitor in the current economy, I would rank the Fed's M2 money supply measure as most important, since it will give us a sense as to how much liquidity is being added to the system.

Next in importance is M1 money supply data, since it will give us a sense if panic is causing added moves into physical currency and checking accounts.

Third the AFP will give us near real time data as to how panicked corporate treasurers are, and how difficult the financing environment is. This data is likely to be released timewise sooner than the M1 numbers. Thus providing a significant piece of data on the attitudes of corporate data before any comparable numbers are released.