In September, the PayNet Small Business Lending Index (SBLI) increased 12 points (9.1%) to 143.9 and is now 2.9% above its year-ago level. Meanwhile, the SBLI 3-month moving average increased 0.9% to 140.6, although it remains 2.6% below its September 2019 reading.

During the month, lending activity softened in five of the 10 largest states, including Michigan (-0.9% M/M) and Ohio (-0.7% M/M). On the positive side, lending expanded in Pennsylvania (0.3% M/M) and Texas (0.1% M/M) for the first time since December. Measured on an annual basis, despite positive headline growth, all 10 of the largest states experienced declines for the sixth consecutive month. Lending health among large states remains geographically divided: California and New York are in the bottom 40% of historic readings while Michigan and North Carolina are in the top 20%.

Lending activity improved in four of 18 industries in September. While transportation (1.2% M/M) and construction (1.4% M/M) experienced modest increases, major declines continued in mining (-4.2% M/M), accommodations (-4.4% M/M) and education (-3.6% M/M). Compared with last year, accommodations (-21.2% Y/Y) is down sharply, while construction (7.7% Y/Y) and public administration (6.9% Y/Y) have improved. The industry story, like the regional story, is divided — finance, mining, information and professional services are in the bottom 10% of their historical readings, while public administration and construction are in the top 20%.

The near-term trajectory of U.S. small businesses continues to be characterized by heightened uncertainty. On the positive side, small firms have benefitted from a solid rebound in consumer spending, which rose again in September, and a faster-than-expected improvement in labor markets. At the same time, however, personal income is $325 billion below July levels due to expiration of CARES Act provisions, suggesting that while recent job growth has been strong, it has not been sufficient to offset the loss of federal support measures. The savings buffer many consumers built up during the spring and summer has benefitted small businesses by boosting spending this fall, but the buffer may be dwindling. A recent JPMorgan analysis found unemployed workers exhausted two-thirds of the savings they accumulated from March to July in August.

On Main Street, the NFIB Uncertainty Index increased to its second-highest reading in the series’ 46-year history as the COVID-19 pandemic and election weighed on small-business decision-making. This uncertainty is reducing future spending plans. The Atlanta Fed’s Survey of Business Uncertainty found that as of mid-October, the average business is cutting its capex budget over the next two years by 20% in response to rising uncertainty. Much remains up in the air as small businesses await clarity from voters and policymakers.

The PayNet Small Business Delinquency Index (SBDI) 31–90 Days Past Due fell 16 basis points last month but is 16 basis points above its year-ago level. The SBDI 91–180 Days Past Due edged down two basis points, the first monthly decline since August 2018, but it remains 20 basis points above its year-ago level. Defaults were unchanged at 3.29%.

For the second straight month, delinquencies fell in all 10 of the largest states, with the biggest decreases occurring in Florida (-28 bp M/M), New York (-25 bp M/M) and Pennsylvania (-18 bp M/M). However, outside of North Carolina (-22 bp Y/Y), delinquencies remain above year-ago levels in large states, although at lower levels than in August. Meanwhile, defaults were mixed. Georgia (-12 bp M/M) and Michigan (-12 bp M/M) experienced solid declines, while defaults continued to mount in Pennsylvania (14 bp M/M) and New York (7 bp M/M).

In September, delinquency rates fell in five of six major industries, while agriculture was unchanged from the prior month. Healthcare (-23 bp M/M), retail (-21 bp M/M) and transportation (-21 bp M/M) declined the most. Compared with a year ago, construction (-39 bp Y/Y) and transportation (-45 bp Y/Y) remained the only industries with lower delinquencies. Regarding defaults, six of 18 industries experienced declines, including transportation (-21 bp M/M) and finance (-8 bp). However, large increases in mining (38 bp M/M) and agriculture (16 bp M/M; largest-ever monthly increase) are concerning.

PayNet data suggest that financial stress on Main Street was mostly unchanged in September as delinquencies eased and defaults held steady after increasing an average of 18 basis points per month from March to August. Small business data from other sources are consistent with this view. Per Opportunity Insights, small business revenue during the last two weeks of September was flat at -23% and the number of small businesses open was flat at -24%, relative to January levels. Further, the number of businesses reporting declines in weekly revenues has hovered around 30% since late August per the Census Bureau’s Small Business Pulse survey. The commonality among these data points is that while a sizable minority of small businesses remain in a precarious position due to the recession and ongoing pandemic — particularly in highly-impacted industries — overall financial stress is holding steady for now. However, surging COVID-19 cases, colder weather and the arrival of flu season may further complicate Main Street recovery efforts, particularly if policymakers tighten operating restrictions to control the virus’ spread. With Congress still deadlocked on providing additional targeted support to struggling small businesses, the risk of rising financial stress in the weeks ahead should be closely monitored.