There were not any major data releases this morning so we will instead take a look at current credit conditions for an important component of the U.S. economy: small business. First, a study out earlier this year from the Federal Reserve Bank of New York found that “cash flow” is frequently cited as a top business challenge for small firms in America, and it is therefore unsurprising that many business owners will have to turn to creditors to fill their funding gaps. Fortunately, loan approval rates are relatively high, and paying back the debt does not appear to be a significant challenge for many companies because delinquency rates remain near all-time lows.
However, the latest reading on the small business lending index (SBLI) from Reuters and PayNet suggests that owners' demand for credit has generally declined during the past twelve months. Specifically, the SBLI in June (lagged release) lifted to 138.9, the best print since February but more than 5 percent lower compared to this same period last year. Borrowing by companies in all major industry groups has waned, and William Phelan, president of PayNet, added that “In a further demonstration of caution in business spending, U.S. small business once again pulled back on investment in June. … Small businesses currently lack the drive to invest to create more goods and services.” Similarly, the responses from owners surveyed last month by the National Federation of Independent Business (NFIB) suggest that although interest rates remain low, the “prospects for putting borrowed money profitably to work have not improved enough to induce owners to step up their borrowing and spending.”
Sources: Econoday, FRBNY, Biz2Credit, Reuters, PayNet, NFIBPost author: Charles Couch