U.S. corporate liquidity weakened in the second quarter, S&P Global Market Intelligence reports.
The rating agency said median reported cash for the investment-grade U.S. companies that it rated was 32.2% of total liabilities in the second quarter, down from 34.9% in the first quarter.
“This median cash ratio is a closely watched measure of liquidity and represents a company’s ability to pay its short-term debt using cash and cash equivalents,” S&P said.
For speculative-grade companies, the median cash ratio declined to 28.8% in the second quarter, down from 29.8% in the previous quarter.
“Companies continued to face higher costs of debt during the quarter as the U.S. Federal Reserve held benchmark interest rates at their highest level in about 20 years,” S&P said.
Among investment-grade companies, the health care sector saw the largest decline in its median cash ratio. Liquidity improved in six of 11 sectors, with the IT and communication services sectors seeing the largest gains in the quarter.
Among speculative-grade companies, the median cash ratio increased in only three sectors, led by the real estate sector.
Despite the financial pressures driving a decline in corporate liquidity in the second quarter, “it has become increasingly likely that the Fed will begin a rate-cutting cycle in September after economic indicators in August signalled cooling inflation and a rising unemployment rate,” S&P said.