A Bifurcated Economy
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A Bifurcated Economy

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A Bifurcated Economy

A Bifurcated Economy

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    A Bifurcated Economy A Bifurcated Economy Presentation Transcript

    • ONE COUNTRYTWO ECONOMIESBill Dunkelberg, Chief Economist – NFIBWilliam J. Dennis, Jr., Pinch Hitter – NFIBRichmond Fed Credit Markets SymposiumApril, 2013Charlotte, NC
    • A Bifurcated EconomyGDP Growth Tepid whileStock Market near Record HighCorporate Profits near Record HighUnemployment Rate at 7.6%[ 0% + 4%] / 2 = 2% Growth
    • Small Business Optimism Index(Quarterly, 1986 = 100)80859095100105110Seasonally AdjustedSource: NFIB Research Foundation
    • Small Business Economic Trends
    • Outlook for Business Expansion(Pct. “Now Is a Good Time”)05101520253076798285889194970003060912PercentofFirms“NO” for 20 Quarters
    • “Not a Good” Time to ExpandDUE TO ________010203040506070809001 04 07 10 13PercentofFirmsPolitical Economic CostsAs Pct. Saying “Not a Good Time”Source: NFIB Research Foundation
    • Reported Change in Past Sales(Last Three Months vs. Prior Three)-40-30-20-10010203076798285889194970003060912[Pct. "Higher" - Pct. "Lower", Seas. Adj.]PercentofFirmsRecession EndsSource: NFIB Research Foundation
    • Earnings Trends -Pct. “Higher” – Pct. “Lower”-50-40-30-20-10076798285889194970003060912PercentofFirms
    • Planned Capital Outlays(Next Three to Six Months)1520253035404577808386899295980104071013PercentofFirmsSource: NFIB Research Foundation
    • INVENTORY INVESTMENT PLANS[% PLAN INCREASE – % PLAN DECREASE]-15-10-505101576798285889194970003060912PercentofFirmsSource: NFIB Research Foundation
    • Job Openings -(Pct. with at Least One Unfilled Opening)51015202530354076798285889194970003060912
    • Net Percent Raising Prices-40-2002040608076798285889194970003060912PercentofFirmsPct. Increase MinusPercent DecreaseSource: NFIB Research Foundation
    • Tepid Small Business RecoveryA Function of: ?1.Credit Supply2.Credit Demand3.Both4.Neither
    • Single Most Important Problem05101520253035404576798285889194970003060912PercentofFirmsInflation Credit/InterestSource: NFIB Research Foundation
    • Single Most Important Small Business Problem:2000 – 2013 (monthly)Source: NFIB Research Foundation
    • Most Important ProblemsProb.Rank Problem – Aug. 20121.2.3.4.5.6.14.26.32.56.Rising Health Care CostsUncertainty Over Economic ConditionsEnergy CostsUncertainty Over Government ActionsCost of Regulations and Red TapeTaxes on Business IncomePoor EarningsPoor SalesLocating Qualified EmployeesSecuring Long Term Financing
    • Regular Borrowing Activity(At Least Once a Quarter)Source: NFIB Research Foundation
    • Loan Demand Weakens Throughthe Recession3540455055PercentofFirmsRecession StartsSource: NFIB Research FoundationPct. – Not Wanting a Loan
    • Business Loans (Origination) under $1 Millionfrom Commercial Banks: 1996 – 2011*Source: Community Reinvestment Act data, Federal Financial Examination Council*Represents approximately 80 percent of such loans.
    • Outstanding Small C&I and RE Loans byNumber and Dollar Volume: 1995-2012(p)Source: Call Reports, FDIC
    • More/Less in Competition forSmall Businesses Banking BusinessSource: NFIB Research Foundation Selected Year
    • Logistic Regression Results Contrasting CreditApplicants and Non-Applicants; 2009 – 2011Variables B S.E. Wald df Sig. Exp(B) New Bus.  (< 4 yrs.)Employees (log)Construction Professional ServicesOwner Sex - MaleUnencumbered RESecond Mortgage(s)“Under Water” RECredit ScoreBig Bank Customer  State RE Economy   Constant-.514-.399-.308.148.383.387-.186-.439.007.020-.060-.417.146.056.155.116.101.058.116.129.002.094.049.15312.42550.4413.9571.61614.36243.7362.56711.51317.105.0461.5127.457111111111111.000.000.047.204.000.000.109.001.000.830.219.006.598.671.7351.1601.4671.472.830.6451.0071.020.942.659Applicant = 0, Non = 1; n = 2107; -2 Log likelihood = 2701.967; Cox &Snell R2= .084; Nagelkerke R2= .115
    • Logistic Regression Results Contrasting Acceptedand Rejected Borrowers; 2009 – 2011Variables B S.E. Wald df Sig. Exp(B)New Bus. (< 4 yrs.)Employees (log)ConstructionProfessional ServicesOwner Sex - MaleUnencumbered RESecond Mortgage(s)“Under Water” RECredit Score Big Bank Customer  State RE Economy Constant-.095.066.372-.257.107.328-.597-.560.014-.517.204-.347.178.068.210.169.155.099.149.157.002.134.070.211.287.945.2872.311.47710.83916.01512.71438.56815.0118.4802.715111111111111.592.331.076.128.490.001.000.000.000.000.004.099.9091.0691.451.7731.1131.388.550.5711.014.5961.227.707Accept = 1, Reject = 0; n = 1231; - 2 Log likelihood = 1344.014; Cox &Snell R2= .144; Nagelkerke R2= .193
    • Credit Approval and Discouraged Borrowersin States Grouped by Residential Mortgageswith Negative EquityCredit Approval High Negative Eq. Med. Negative Eq.Low Negative Eq. All StatesAcceptedRejected43%5759%4163%3756%44N 321 840 249 1410Not Borrowing High Negative Eq. Med. Negative Eq.Low Negative Eq. All StatesNon-BorrowerDiscouraged     Borrower84%1684%1689%1185%15N 229 544 170 943Source: NFIB Research Foundation
    • Small-Employer-Owned Real Estate by SelectedReal Estate Finance Characteristics – 2010  Residential Business1Investment All Real EstateCharacteristic Total2Own3Mort.4Total2Own3Mort.4Total2Own3Mort.4Total2Own3Mort.4 Own1st Mortgage2nd MortgageUpside-DownMort. For   Bus. PurposesUsed as Collateral94%61 65%16 17 26%6 7 1015 16 247 7 1136%19 63%1 4 7 %1 4 62 9 204 19 3037%18 49%2 5 9%3 8 152 5 92 6 1295%68 71%17 18 25%8 9 1217 18 2111 11 16 N 734 693 457 734 324 198 734 310 166 734 708 537Source : “Small Business and Credit Access,” NFIB Research Foundation, January 2011.1Businesses operating primarily from the home are included in residential only.2As a percentage of the small employer population.3As a percentage of small employers owning that type of real estate.4As a percentage of small employers with that type of real estate mortgaged.
    • Summary• Small business is recovering hesitantly.• Great uncertainty exists.• Small business problems associated most oftenwith uncertainty, taxes, and regulation.• Sales problem remains, but is declining.• Credit has been primarily a demand issue.• Real estate has played an enormous and under-appreciated role in small business problems.