Phoenix Survey: Lenders Increasingly Pessimistic About U.S. Economy



According to the third quarter 2019 Phoenix Management “Lending Climate in America” survey, lenders are increasingly pessimistic of the U.S. economy in both the near and long term.

After a brief resurgence in Q2/2019, lenders displayed a more adverse outlook and assessment of the U.S. economy for the near term. The GPA for the U.S. economy in the near term significantly decreased 39 percentage points to 2.38 from the Q2/2019 results of 2.77. Additionally, lenders’ optimism of the U.S. economy in the long term continued to weaken, slightly decreasing 3 percentage points to a 2.04 from the previous quarter’s results of 2.07.

Furthermore, lenders were surveyed on whether or not they believe consumer behavior will be a key to a continued strong U.S. economy. While the U.S. economy could take any number of directions in the next 12 months, 77% of lenders believe that consumer behavior will be key to a continued strong economy and if hiring remains steady and the unemployment rate stays low, the consumer will be a strong foundation to keeping the economy positive. Of the lenders surveyed, 23% disagree and believe there are other variables that will have greater impact on the U.S. economy’s strength.

Phoenix’s Q3/2019 “Lending Climate in America” survey asked lenders their expectations on the current trade war and how it will affect borrowers in the next 6-12 months. The majority of lenders, 69%, expect lenders will be moderately affected with a slight increase in borrower costs and modest impact on liquidity. Twenty-three percent of lenders expect borrowers will be minimally affected and that consumer spending will remain strong, while 8% expect borrowers to be strongly affected with increasing tension, uncertainty, and tariffs to lead to significantly higher costs, severe liquidity constraints, and a noticeable increase in defaults.

Lenders were also surveyed this quarter on whether they expect economic indicators to be up, down, or remain at the same level over the next six months. The question drills down even further into specific economic indicators including, but not limited to, bankruptcies, loan losses, and interest rates. To measure lender sentiment, the survey utilizes a Diffusion Index. The Diffusion Index is calculated by subtracting the percentage of negative expectations from the percentage of positive expectations. In the Q3 2019 survey, the loan losses diffusion index increased 28 percentage points from 38% in the previous quarter’s results to 66% in Q3 19. In addition, the bankruptcy diffusion index increased to 61% in Q3 19 compared to 42% in Q2 19, and interest rates diffusion index decreased from 22% in Q2 19 to negative 26% in Q3 19.

“Despite economic confidence dwindling in Q3 2019, the majority of lenders believe consumer confidence will be a driving factor for maintaining the economy’s positive performance. It will be interesting to see if consumer confidence changes lenders outlook of the U.S. economy in 2020” says Michael Jacoby, senior managing director and shareholder of Phoenix.

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