Small Business Lending in High Demand; Solid Leading Indicator

While the U.S. GDP recovery is well into its 5th year now, labor market recovery has remained painfully slow. Most economists blame the lack of investment by small businesses, the primary engine of job growth. Two surveys that we follow provide some reason for optimism on this front. First, the Federal Reserve’s quarterly survey of banks’ senior loan officers provides various insights on the supply of, and demand for, credit in the U.S. economy. Second, the National Federation of Independent Businesses (NFIB), a national trade association for small businesses, conducts a monthly survey of its members. The NFIB’s Plans to Hire Index has been rising sharply this year and the August data point for this series was the highest since before the crisis. In its most-recent survey released in July, the Federal Reserve noted that a net 20% of banks reported an increase in loan demand from small businesses, again the highest percentage since before the crisis. Finally, our analysis also suggests that an increase in small-business loan demand is a solid leading indicator of increased hiring plans.

Courtesy of Argus Research