Category Archives: Small Business

Examining the Supply & Demand for Small Business Loans

Last week one of my favorite pieces of economic data was released, the NFIB Small Business Economic Trend report. (pdf) This report, coupled with the Federal Reserve quarterly survey of senior loan officers gives us a good indication of the health of small business in the U.S.

The NFIB headline optimism index rose 2.7 points in September but is still at recessionary levels. Let’s dig a little deeper by looking at a series of charts. First up, is a look at the supply and demand of small business lending by examining the senior loan officer survey.

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High Number of Those Not-In-Labor-Force Suggests Headline Unemployment Rate to Remain High

On Friday the Bureau of Labor Statistics released its Employment Situation report. In the headline establishment survey, the nonfarm payroll gain of 151,000 attracted most of the attention. It was well above the 60,000 consensus estimate and showed strength in the private sector with 159,000 jobs added (government employment fell 8,000). From the household survey we find the unemployment rate held steady at 9.6%. It is this household surgery that I will focus on as the composition of the unemployment rate will be something to keep an eye on going forward and may contribute to the rate remaining elevated.

The household survey consists of those employed, unemployed and those not in the labor force. These three categories add up to the total population however the employment rate is calculated as the unemployed divided by the labor force (employed plus unemployed). As the number not in the labor force increases, as it has during this recession, it serves to reduce the unemployment rate. However, as the economy recovers adding those not in the workforce back to the denominator of the unemployment rate calculation will serve to inflate the rate. Not only do the unemployed have to find jobs but also those currently counted as not in the labor force but that will chose to return when prospects for employment improve.

For example, in January of 2007 the 230 million of survey population was comprised of 146 million employed, 7 million unemployed and 77 million not in the labor force (63%, 3% and 34% respectively). As of October 2010, the 239 million population is comprised of 139 million employed, 15 million unemployed and 85 million not in the labor force (58%, 6% and 35% respectively). See chart below. The bottom line is that those not in the workforce has grown as a percentage of the total; as the number is reduced to the extent that they don’t go straight to employed it will be an upward pressure on the unemployment totals.

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Big Banks Loosen Lending Standards: Does it Matter?

The front page of the Wall Street Journal today proclaimed that “Big Banks Loosen Lending Standards”. Further reading revels that while credit standards are becoming more liberal, demand is still weak; especially among businesses with annual sales less than $50 million.

So the question is, will the easing of lending supply also spur demand or will the deleveraging trend (see below) continue within this key driver of economic growth, the small business?

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