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ONE COUNTRY TWO ECONOMIES Bill Dunkelberg, Chief Economist – NFIB William J. Dennis, Jr., Pinch Hitter – NFIB Richmond Fed Credit Markets Symposium April,

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Presentation on theme: "ONE COUNTRY TWO ECONOMIES Bill Dunkelberg, Chief Economist – NFIB William J. Dennis, Jr., Pinch Hitter – NFIB Richmond Fed Credit Markets Symposium April,"— Presentation transcript:

1 ONE COUNTRY TWO ECONOMIES Bill Dunkelberg, Chief Economist – NFIB William J. Dennis, Jr., Pinch Hitter – NFIB Richmond Fed Credit Markets Symposium April, 2013 Charlotte, NC

2 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

3 Small Business Optimism Index (Quarterly, 1986 = 100) Seasonally Adjusted Source: NFIB Research Foundation

4 Small Business Economic Trends

5 Outlook for Business Expansion (Pct. “Now Is a Good Time”) “ NO” for 20 Quarters

6 “Not a Good” Time to Expand DUE TO ________ As Pct. Saying “Not a Good Time” Source: NFIB Research Foundation

7 Reported Change in Past Sales (Last Three Months vs. Prior Three) Recession Ends Source: NFIB Research Foundation

8 Earnings Trends - Pct. “Higher” – Pct. “Lower”

9 Planned Capital Outlays ( Next Three to Six Months) Source: NFIB Research Foundation

10 INVENTORY INVESTMENT PLANS [% PLAN INCREASE – % PLAN DECREASE] Source: NFIB Research Foundation

11 Job Openings - (Pct. with at Least One Unfilled Opening)

12 Net Percent Raising Prices Pct. Increase Minus Percent Decrease Source: NFIB Research Foundation

13 Tepid Small Business Recovery A Function of: ? 1.Credit Supply 2.Credit Demand 3.Both 4.Neither

14 Single Most Important Problem Source: NFIB Research Foundation

15 Single Most Important Small Business Problem: 2000 – 2013 (monthly) Source: NFIB Research Foundation

16 Most Important Problems Prob. RankProblem – Aug. 2012 1. 2. 3. 4. 5. 6. 14. 26. 32. 56. Rising Health Care Costs Uncertainty Over Economic Conditions Energy Costs Uncertainty Over Government Actions Cost of Regulations and Red Tape Taxes on Business Income Poor Earnings Poor Sales Locating Qualified Employees Securing Long Term Financing

17 Regular Borrowing Activity (At Least Once a Quarter) Source: NFIB Research Foundation

18 Loan Demand Weakens Through the Recession Recession Starts Source: NFIB Research Foundation Pct. – Not Wanting a Loan

19 Business Loans (Origination) under $1 Million from Commercial Banks: 1996 – 2011* Source: Community Reinvestment Act data, Federal Financial Examination Council *Represents approximately 80 percent of such loans.

20 Outstanding Small C&I and RE Loans by Number and Dollar Volume: 1995-2012(p) Source: Call Reports, FDIC

21 More/Less in Competition for Small Businesses Banking Business Source: NFIB Research Foundation Selected Year

22 Logistic Regression Results Contrasting Credit Applicants and Non-Applicants; 2009 – 2011 VariablesBS.E.WalddfSig.Exp(B) New Bus. (< 4 yrs.) Employees (log) Construction Professional Services Owner Sex - Male Unencumbered RE Second Mortgage(s) “Under Water” RE Credit 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 12.425 50.441 3.957 1.616 14.362 43.736 2.567 11.513 17.105.046 1.512 7.457 11111 11111 1 1 11111 11111 1 1.000.047.204.000.000.109.001.000.830.219.006.598.671.735 1.160 1.467 1.472.830.645 1.007 1.020.942.659 Applicant = 0, Non = 1; n = 2107; -2 Log likelihood = 2701.967; Cox &Snell R 2 =.084; Nagelkerke R 2 =.115

23 Logistic Regression Results Contrasting Accepted and Rejected Borrowers; 2009 – 2011 VariablesBS.E.WalddfSig.Exp(B) New Bus. (< 4 yrs.) Employees (log) Construction Professional Services Owner Sex - Male Unencumbered RE Second Mortgage(s) “Under Water” RE Credit Score Big Bank Customer State RE Economy Constant -.095.066.372 -.257.107.328 -.597 -.560.014 -.517.204 -.347.178.068.210.169.155.099.149.157.002.134.070.211.287.945.287 2.311.477 10.839 16.015 12.714 38.568 15.011 8.480 2.715 1 1 1 1.592.331.076.128.490.001.000.004.099.909 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 R 2 =.144; Nagelkerke R 2 =.193

24 Credit Approval and Discouraged Borrowers in States Grouped by Residential Mortgages with Negative Equity Credit ApprovalHigh Negative Eq.Med. Negative Eq. Low Negative Eq.All States Accepted Rejected 43% 57 59% 41 63% 37 56% 44 N3218402491410 Not BorrowingHigh Negative Eq.Med. Negative Eq. Low Negative Eq.All States Non-Borrower Discouraged Borrower 84% 16 84% 16 89% 11 85% 15 N229544170943 Source: NFIB Research Foundation

25 Small-Employer-Owned Real Estate by Selected Real Estate Finance Characteristics – 2010 ResidentialBusiness 1 InvestmentAll Real Estate CharacteristicTotal 2 Own 3 Mort. 4 Own 1 st Mortgage 2 nd Mortgage Upside-Down Mort. For Bus. Purposes Used 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. 1 Businesses operating primarily from the home are included in residential only. 2 As a percentage of the small employer population. 3 As a percentage of small employers owning that type of real estate. 4 As a percentage of small employers with that type of real estate mortgaged.

26 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.

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