Not much surprising in the NFIB’s small business survey for September — the main optimism index moved up slightly but remained in roughly the same (recessionary) range as it’s been for more than a year.
The employment component reversed its mildly positive trend from August, and the capital spending, sales, and inflation components also declined. The profits outlook among small business owners also weakened, and here is what the report said about credit (emphasis ours):
Overall, 91 percent reported that all their credit needs were met or that they were not interested in borrowing. Nine percent reported credit needs not satisfied, and a record 53 percent said they did not want a loan. Only three percent reported financing as their #1 business problem. However, 30 percent of the owners reported weak sales as their top business problem. The historically high percent of owners who cite weak sales means that investments in new equipment or new workers are not likely to “pay back” and thus loans taken to finance the outlays can’t be repaid.
A near record low 33 percent of all owners reported borrowing on a regular basis. Reported and planned capital spending are at 35 year record low levels, so fewer loans are needed. Sounds like weak credit demand. Those looking for loans predominately are looking for cash flow support, not funds to expand or hire. The percent of owners reporting higher interest rates on their most recent loan was five percent, while three percent reported lower rates. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 14 percent, unchanged from August. The Federal Reserve is holding rates at historically low levels, but this is not improving the outlook for the ease of financing expansion. Sales are needed, not just low rates.
So not only are small businesses uninterested in getting more financing, but they increasingly think that financing conditions will worsen. Maybe investors are front-running the Fed, but small businesses seem unconvinced that further easing will actually loosen credit.
Here are the chart and graphs from the monthly survey that usually get all the attention:
As we’ve pointed out before, the question of whether the slowdown in small business lending is primarily driven by issues of demand (sales) or supply (credit constraints) is difficult to answer — but the NFIB survey is clearly a data point in favour of demand.
That said, we should add that the above figures are also limited in what they tell us. As businesses can only choose a single most important problem, there’s no indication of how the problems would rank after the first choice and, therefore, of the relative importance of each problem.
Related links:
Small Business Optimism Index Remains at Recessionary Level – NFIB
A grim outlook for small business lending – FT Alphaville