A Bifurcated Economy

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A Bifurcated Economy

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A Bifurcated Economy

  1. 1. ONE COUNTRYTWO ECONOMIESBill Dunkelberg, Chief Economist – NFIBWilliam J. Dennis, Jr., Pinch Hitter – NFIBRichmond Fed Credit Markets SymposiumApril, 2013Charlotte, NC
  2. 2. A Bifurcated EconomyGDP Growth Tepid whileStock Market near Record HighCorporate Profits near Record HighUnemployment Rate at 7.6%[ 0% + 4%] / 2 = 2% Growth
  3. 3. Small Business Optimism Index(Quarterly, 1986 = 100)80859095100105110Seasonally AdjustedSource: NFIB Research Foundation
  4. 4. Small Business Economic Trends
  5. 5. Outlook for Business Expansion(Pct. “Now Is a Good Time”)05101520253076798285889194970003060912PercentofFirms“NO” for 20 Quarters
  6. 6. “Not a Good” Time to ExpandDUE TO ________010203040506070809001 04 07 10 13PercentofFirmsPolitical Economic CostsAs Pct. Saying “Not a Good Time”Source: NFIB Research Foundation
  7. 7. 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
  8. 8. Earnings Trends -Pct. “Higher” – Pct. “Lower”-50-40-30-20-10076798285889194970003060912PercentofFirms
  9. 9. Planned Capital Outlays(Next Three to Six Months)1520253035404577808386899295980104071013PercentofFirmsSource: NFIB Research Foundation
  10. 10. INVENTORY INVESTMENT PLANS[% PLAN INCREASE – % PLAN DECREASE]-15-10-505101576798285889194970003060912PercentofFirmsSource: NFIB Research Foundation
  11. 11. Job Openings -(Pct. with at Least One Unfilled Opening)51015202530354076798285889194970003060912
  12. 12. Net Percent Raising Prices-40-2002040608076798285889194970003060912PercentofFirmsPct. Increase MinusPercent DecreaseSource: NFIB Research Foundation
  13. 13. Tepid Small Business RecoveryA Function of: ?1.Credit Supply2.Credit Demand3.Both4.Neither
  14. 14. Single Most Important Problem05101520253035404576798285889194970003060912PercentofFirmsInflation Credit/InterestSource: NFIB Research Foundation
  15. 15. Single Most Important Small Business Problem:2000 – 2013 (monthly)Source: NFIB Research Foundation
  16. 16. 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
  17. 17. Regular Borrowing Activity(At Least Once a Quarter)Source: NFIB Research Foundation
  18. 18. Loan Demand Weakens Throughthe Recession3540455055PercentofFirmsRecession StartsSource: NFIB Research FoundationPct. – Not Wanting a Loan
  19. 19. 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.
  20. 20. Outstanding Small C&I and RE Loans byNumber and Dollar Volume: 1995-2012(p)Source: Call Reports, FDIC
  21. 21. More/Less in Competition forSmall Businesses Banking BusinessSource: NFIB Research Foundation Selected Year
  22. 22. 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
  23. 23. 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
  24. 24. 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
  25. 25. 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.
  26. 26. 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.

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