U.S. Small Business Lending Falls, Investment Signals Weaker GDP Growth

The March 2016 data release of the Thomson Reuters/PayNet Small Business Lending Index (SBLI), decreased from 138.9 in February to 135.3 in March.

Compared to the same month one year ago, the index is up 4%. The small decrease in the SBLI comes one month after a 17% jump in February, the largest monthly increase in the index’s history.

“March data confirms the economic stall. Private companies aren’t willing to take on risks right now,” said William Phelan, president of PayNet. “In this risk-off posture, GDP will remain moderate and below its long-term potential.”

In the aggregate, private companies are maintaining production capacity by investing in replacement levels. However, most industry sectors are reducing investment reflecting their bearish outlook for the economy. Construction remains the only major sector driving the economy at 9.2%. Finances for private companies mirror the modest investment activity.

Additionally, the Thomson Reuters/PayNet Small Business Delinquency Index (SBDI) 31-90 days past due held steady at 1.21% from February to March. As compared to one year ago, delinquency decreased three basis points. This is the 10th consecutive month of year-over-year decreases after 12 straight months of increases.

Transportation delinquency is up five basis points to 1.28%, its 13th consecutive monthly increase and its highest level since April 2013. Agriculture delinquency is up three basis points to 0.63%, its sixth consecutive monthly increase and its highest level since August 2011. Healthcare and general delinquencies each decreased one basis point.

Credit quality, which PayNet predicted would worsen somewhat in 2016, may remain unusually high due to this risk-off mentality, so business defaults will likely remain lower than previously forecasted.

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