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Phoenix Lending Survey: Tentative Optimism Among Lenders

June 10, 2019, 09:00 AM
Filed Under: Economy

From the second-quarter Phoenix Management “Lending Climate in America” Survey, results reveal tentative optimism among lenders.

Lenders displayed a more positive outlook and assessment of the U.S. economy in the near term. The grade point average for the U.S. economy in the near term increased 25 percentage points to 2.77 from the Q1 2019 results of 2.52. On the contrary, lenders optimism on the U.S. economy weakened, significantly decreasing 23 percentage points to a 2.07 from the previous quarter’s results of 2.30.

Furthermore, lenders were surveyed on whether or not they believe a slowdown in the U.S. economy will occur in the next 12 months. While there has been evidence compounding a slowdown of the U.S. economy, 57 percent of lenders believe there is still potential for further growth in the next year before any slowdown. Of the lenders surveyed, 43 percent believe we will see a slowdown in the next 12 months.

Phoenix’s Q2 2019 “Lending Climate in America” survey asked lenders their expectations on unemployment and how it will affect borrowers for the remainder of 2019. The majority of lenders, 54 percent, do not expect unemployment rate to have significant effect on borrowers’ profitability. Thirty-seven percent of lenders expect unemployment rate will cause increased labor costs and reduce profitability, while 9 percent expect unemployment will cause revenue growth and increase profitability.

Lenders were also surveyed this quarter on whether they expect economic indicators to be up, down, or remain at the same level over the next six months. The question drills down even further into specific economic indicators including, but not limited to, bankruptcies, unemployment, and interest rates. To measure lender sentiment, the survey utilizes a Diffusion Index. The Diffusion Index is calculated by subtracting the percentage of negative expectations from the percentage of positive expectations. In the Q2 2019 survey, the bankruptcy diffusion index decreased 25 percentage points from 67 percent in the previous quarter’s results to 42 percent in Q2 19. In addition, the loan losses diffusion index decreased to 22 percent in Q2 19 compared to 48 percent in Q1 19, and unemployment increased from negative 21 percent in Q1 19 to negative 4 percent in Q2 19.

"The results from the Q2 2019 survey indicate lenders are becoming optimistic about the U.S. economy in the near term. This optimism and improved confidence was further supported by the decrease in lenders’ expectations for bankruptcies and loan losses to increase over the next six months” said Michael Jacoby, Senior Managing Director and Shareholder of Phoenix.

View the full results of Phoenix’s “Lending Climate in America” Survey.

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