Jeffrey Goldberg on Small Business Lending and the Economic Recovery
Today, guest blogger Jeffrey Goldberg rejoins us to interpret the recent increase in small business lending in the context of the economic recovery.
These are the worst economic times in nearly 80 years and the climb out of the Great Recession has been halting and slow. There is little chance of further government action to spur demand. The remaining monetary tools available to the Federal Reserve are limited and risky.
In this climate any positive projection from a respected analyst is welcome. Ian Shepherdson, chief US economist for High Fidelity Economics, offered a dose of economic optimism in a recent New York Times article by Gretchen Morgenson (November 6, 2010).
Shepherdson, who served as top US analyst for HSBC Securities prior to moving over to High Fidelity, sees hope in the improving statistics on commercial and industrial (C&I) bank lending to small businesses (defined by the Federal Reserve as companies with less than $50 million in annual sales). This time last year, C&I lending was contracting at a rate of nearly $7 billion per week. This contraction continued into 2010 (C&I loans fell about $68 billion this year through October) but according to Shepherdson the contraction in loan volume is coming to an end and he expects gradual expansion going forward.
Small business, which employs fifty percent of the American work force, has been particularly hard hit throughout the recession and recovery by restrictive bank lending standards. While large manufacturers have been in recovery for months, small companies have continued to struggle. In the fall of 2009 loan availability for small business reached its worst level in twenty-three years according to the National Federation of Independent Business,
Driven by improved access to C&I loans for the small business sector, Shepherdson is projecting 3% to 4% annualized GDP growth for the second half of 2011, with better growth in 2012. In the meantime, he projects continued GDP growth of about 2%, in line with current rates, and no double dip recession. Dean Maki, chief US economist for Barclays Capital is predicting a 3% annualized growth rate for the current quarter, up from 2% growth in the quarter ending September 30, 2010.
Easing lending standards does not guarantee increased small business borrowing for expansion, hiring and capital purchases. On November 8 the Fed confirmed that while US banks loosened standards for C&I lending to small businesses beginning in August, total demand for C&I loans has actually declined over the last three months. According to Ian Shepherdson, more robust small business borrowing is on the horizon for next year, not this year, and the start of a gradual return to more normal post-recession growth rates is six months to a year away.
Guest post by Jeffrey Goldberg
Steven N. Berk has over twenty years of litigation experience spanning both the private and public sectors. His practice ranges from representing Fortune 500 Companies, to consumers. Steven is based in Washington, D.C. and founded Berk Law in May 2009....
