Download - A Bifurcated Economy
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ONE COUNTRYTWO ECONOMIES
Bill Dunkelberg, Chief Economist – NFIB
William J. Dennis, Jr., Pinch Hitter – NFIB
Richmond Fed Credit Markets Symposium
April, 2013
Charlotte, NC
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A Bifurcated Economy
GDP Growth Tepid while
Stock Market near Record High
Corporate Profits near Record High
Unemployment Rate at 7.6%
[ 0% + 4%] / 2 = 2% Growth
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Small Business Optimism Index(Quarterly, 1986 = 100)
80
85
90
95
100
105
110
Seasonally Adjusted
Source: NFIB Research Foundation
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Small Business Economic Trends
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Outlook for Business Expansion(Pct. “Now Is a Good Time”)
0
5
10
15
20
25
30
76 79 82 85 88 91 94 97 '00 '03 '06 '09 '12
Perc
ent
of F
irms
“NO” for 20 Quarters
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“Not a Good” Time to ExpandDUE TO ________
0102030405060708090
'01 '04 '07 '10 '13
Perc
ent
of F
irm
s
Political Economic Costs
As Pct. Saying “Not a Good Time”
Source: NFIB Research Foundation
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Reported Change in Past Sales (Last Three Months vs. Prior Three)
-40
-30
-20
-10
0
10
20
30
76 79 82 85 88 91 94 97 '00 '03 '06 '09 '12
[Pct. "Higher" - Pct. "Lower", Seas. Adj.]
Perc
ent
of F
irms
Recession Ends
Source: NFIB Research Foundation
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Earnings Trends - Pct. “Higher” – Pct. “Lower”
-50
-40
-30
-20
-10
0
76 79 82 85 88 91 94 97 '00 '03 '06 '09 '12
Perc
ent
of
Firm
s
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Planned Capital Outlays(Next Three to Six Months)
15
20
25
30
35
40
45
77 80 83 86 89 92 95 98 '01 '04 '07 '10 '13
Perc
ent
of F
irm
s
Source: NFIB Research Foundation
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INVENTORY INVESTMENT PLANS[% PLAN INCREASE – % PLAN DECREASE]
-15
-10
-5
0
5
10
15
76 79 82 85 88 91 94 97 '00 '03 '06 '09 '12
Perc
ent
of F
irm
s
Source: NFIB Research Foundation
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Job Openings -(Pct. with at Least One Unfilled Opening)
5
10
15
20
25
30
35
40
76 79 82 85 88 91 94 97 '00 '03 '06 '09 '12
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Net Percent Raising Prices
-40
-20
0
20
40
60
80
76 79 82 85 88 91 94 97 '00 '03 '06 '09 '12
Perc
ent
ofFi
rms
Pct. Increase Minus Percent Decrease
Source: NFIB Research Foundation
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Tepid Small Business Recovery
A Function of: ?
1.Credit Supply
2.Credit Demand
3.Both
4.Neither
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Single Most Important Problem
0
5
10
15
20
25
30
35
40
45
76 79 82 85 88 91 94 97 '00 '03 '06 '09 '12
Perc
ent
of F
irm
s Inflation Credit/Interest
Source: NFIB Research Foundation
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Single Most Important Small Business Problem:
2000 – 2013 (monthly)
Source: NFIB Research Foundation
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Most Important ProblemsProb.Rank Problem – Aug. 2012
1.2.3.4.5.6.14.26.32.56.
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
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Regular Borrowing Activity(At Least Once a Quarter)
Source: NFIB Research Foundation
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Loan Demand Weakens Through the Recession
35
40
45
50
55
Percent of Firms
Recession Starts
Source: NFIB Research Foundation
Pct. – Not Wanting a Loan
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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.
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Outstanding Small C&I and RE Loans by Number and Dollar Volume: 1995-2012(p)
Source: Call Reports, FDIC
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More/Less in Competition for Small Businesses Banking Business
Source: NFIB Research Foundation Selected Year
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Logistic Regression Results Contrasting CreditApplicants and Non-Applicants; 2009 – 2011
Variables B S.E. Wald df Sig. Exp(B)
New Bus. (< 4 yrs.)Employees (log)Construction Professional ServicesOwner Sex - Male
Unencumbered RESecond Mortgage(s)“Under Water” RECredit Score
Big 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
.153
12.42550.441 3.957 1.616 14.362
43.736 2.56711.51317.105
.046
1.512
7.457
11111 1111
1 1 1
.000
.000 .047 .204.000
.000 .109 .001.000
.830
.219
.006
.598 .671 .7351.1601.467
1.472 .830 .6451.007
1.020
.942
.659
Applicant = 0, Non = 1; n = 2107; -2 Log likelihood = 2701.967; Cox &Snell R2 = .084; Nagelkerke R2 = .115
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Logistic Regression Results Contrasting Accepted and Rejected Borrowers; 2009 – 2011
Variables B S.E. Wald df Sig. Exp(B)
New Bus. (< 4 yrs.)Employees (log)ConstructionProfessional ServicesOwner Sex - Male
Unencumbered 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 .477
10.839 16.015 12.714 38.568
15.011
8.480
2.715
11111 1111
1 1
1
.592.331 .076 .128 .490
.001 .000 .000.000
.000
.004
.099
.909
1.069 1.451 .773 1.113
1.388
.550 .571 1.014
.596
1.227
.707
Accept = 1, Reject = 0; n = 1231; - 2 Log likelihood = 1344.014; Cox &Snell R2 = .144; Nagelkerke R2 = .193
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Credit Approval and Discouraged Borrowers in States Grouped by Residential Mortgages
with Negative Equity
Credit Approval High Negative Eq. Med. Negative Eq.
Low Negative Eq. All States
AcceptedRejected
43%57
59%41
63%37
56%44
N 321 840 249 1410
Not Borrowing High Negative Eq. Med. Negative Eq.
Low Negative Eq. All States
Non-BorrowerDiscouraged Borrower
84%
16
84%
16
89%
11
85%
15
N 229 544 170 943
Source: NFIB Research Foundation
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Small-Employer-Owned Real Estate by SelectedReal Estate Finance Characteristics – 2010
Residential Business1 Investment All Real Estate
Characteristic Total2 Own3 Mort.4 Total2 Own3 Mort.4 Total2 Own3 Mort.4 Total2 Own3 Mort.4
Own1st Mortgage2nd MortgageUpside-DownMort. For Bus. PurposesUsed as Collateral
94% 61 65% 16 17 26% 6 7 10 15 16 24 7 7 11
36% 19 63% 1 4 7 % 1 4 6 2 9 20 4 19 30
37% 18 49% 2 5 9% 3 8 15 2 5 9 2 6 12
95% 68 71% 17 18 25% 8 9 12 17 18 21 11 11 16
N
734 693 457
734 324 198
734 310 166
734 708 537
Source : “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.
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Summary
• Small business is recovering hesitantly.• Great uncertainty exists.• Small business problems associated most often
with 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.