Small Business Defaults Rise, Borrowing Drops: "What Scares Us Is The Rise In Delinquencies"

Tyler Durden's picture

Yesterday, we pointed out something disturbing when we looked at the latest NACM Credit Manager Index report: over the past year it had declined steadily, hitting the lowest print since 2009, or as the National Asscoiation of Credit Managers' economist Chris Kuehl said “Overall, it was fun while it lasted - the trends had been up and now they aren’t" adding that “the best that can be said about the decline is that it was bad and hasn’t gotten much worse.... The sales collapse is consistent with what has been appearing in the Purchasing Managers’ Index and other statistics, so it is unlikely to be an anomaly, not good timing as far as the retail community is concerned.”

 

 

Today, we got a validating, and equally concerning, perspective on how small businesses are doing, courtesy of the latest Thomson Reuters/PayNet Small Business Lending Index, which fell to 121.5 in July, the lowest level since January and down from an upwardly revised 139.2 in June. 

But while the headline decline was mildly troubling, the details within the report were worse: according to PayNet, borrowing by U.S. small businesses sank in July, with more firms late on repaying existing loans, trends which according to Reuters "point to softer economic growth ahead."

More troubling is that companies are increasingly struggling to pay back existing debts. Loans more than 30 days past due rose in July to 1.63%, the fourth straight monthly increase and the highest delinquency rate since December 2012, separate data from PayNet showed.

"The thing that scares us is the rise in delinquencies," said Bill Phelan, PayNet's president. "Every one of these months where investment is down and delinquencies are up is one step more toward contraction."

Here is why the PayNet data matters: the index typically corresponds to U.S. gross domestic product growth one or two quarters ahead. With the U.S. economy growing a paltry 1.1% in Q2, many economists have staked their reputation on the belief that growth will rebound in the third quarter. According to this data, not only will there be no rebound, but growth will deteriorate further.

Small business borrowing is a key barometer of growth because small companies tend to do much of the hiring that drives economic gains.

Just as importantly, the figures come as the Federal Reserve mulls the timing of its next rate hike, which may take place in just three weeks. With demand for debt sliding, and delinquencies steadily on the rise, the one thing that will happen if the Fed raises rates again, is accelerate these already adverse trends, leading to even less borrowing, and even more delinquencies and defaults.

PayNet collects real-time loan information such as originations and delinquencies from more than 325 leading U.S. lenders.

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thegazzman's picture

great news, yellen will be wet hearing this

another reason to extend and pretend into the never ever 

MATA HAIRY's picture

tell me more about janet getting wet....

roxyNL's picture

The ((( FED ))) and the (((globalist))) are realising that the end of this cycle is near !

The big question is will there be a complete reset or a recovery ... finally it all depends on how people will react !

katchum's picture

Which is why there will be no rate hike.

Cycle's picture

Does this mean that Bernanke gets a failing grade on his PhD thesis, or does the experiment in centrally managed capitalism continue?

scintillator9's picture

Anyone remember this?

https://www.bloomberg.com/news/articles/2015-12-16/fed-ends-zero-rate-er...

Policy makers separately forecast an appropriate rate of 1.375 percent at the end of 2016, the same as September, implying four quarter-point increases in the target range next year, based on the median number from 17 officials.

CheapBastard's picture

Obamacare is killing small businesses as well as the middle class. Does not matter how much they brag about new hospitals and modern equipment when Americans can't get access to it.

Last of the Middle Class's picture

Every law within the last 20 years has some line in it to restrict small busisness. Let me give you an example. Retail pharmacists are required to take time to "counsel" patients about their medications. Mail order pharmacies need only offer a phone # to call if you have questions. Although it may appear small it adds $$ to the cost of every prescription in pharmacist time whereas the cost to the Mail order pharmacy is nil.  There are literally hundreds of thousands of the rules that have killed and are continuing to kill small business. It will take someone years to go through each and every one of them and make sure the field is level to bring back small busisness. A massive uindertaking that the politicians just don't have the heart for since the donations come from the uber wealthy.

knotjammin2's picture

I have been in business since 1987.  In my opinion it is not that businesses  were not borrowing, it’s that the banks quit lending.  They turned off the money intentionally.  In the third week of June this year the banks shut it down. 

knotjammin2's picture

I think most people are good with there being fewer bankers on the other side of the reset.  I don't know how many dead bankers will be enough to satisfy the masses but I'm sure it will be almost all of them.

OldPost's picture

Pull the damn plug already dam it....I'm growing old waiting for the chaos..