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Phoenix Lending Survey: COVID-19 Creates Pessimism in Economy Near-Term

May 20, 2020, 09:10 AM
Filed Under: Economy

From the second-quarter Phoenix Management “Lending Climate in America” survey results reveal COVID-19 has created pessimism in the U.S. economy’s near-term performance.

The outlook for the U.S. economy saw a significant decrease in the near-term. The near-term grade point average (GPA) decreased 139 percentage points to 1.18 from the Q1 2020 GPA of 2.57, the lowest GPA since Q1 2009. These results show lenders deep concern for the performance of the U.S. economy during the worldwide COVID-19 pandemic. Interestingly, the projected outlook for the U.S. economy in the long-term significantly increased (by 45 percentage points) to a 2.24 from the previous quarter’s results of 1.79. 

Lenders were asked to identify how effective they think the fiscal measures by the federal government of providing trillion of dollars of stimulus to buffer the economic impact brought on by the COVID-19 crisis have been. The majority of lenders, 53 percent, believe the measures have been slightly effective. Thirty-eight percent of lenders believe the measures have been effective, while 7 percent believe the fiscal measures have been very effective.

Phoenix’s Q2 2020 “Lending Climate in America” survey asked lenders 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 bankruptcies, loan losses, and unemployment. Our survey utilizes the Diffusion Index to measure lender sentiment.  The Diffusion Index is calculated by subtracting the percentage of negative expectations from the percentage of positive expectations. In Q2/20 we saw an increase from lenders on bankruptcies, loan losses, and unemployment metrics when compared to the Q1/20 results. One hundred percent of lenders expect bankruptcies and loan losses to increase and 26 percent expect an increase in unemployment.

Lenders were also surveyed this quarter on what they think the unemployment rate will be by Dec. 31, 2020. The majority of lenders, 50 percent, think the unemployment rate will be between 10.01-15.0 percent by Dec. 31, 2020. Of the lenders surveyed, 28 percent think the unemployment rate will be between 5.01-10.0 percent. Eighteen percent of lenders think the unemployment rate will be between 15.01-20 percent.

“In Q1/20, 40 percent of the respondents believed the coronavirus would be the largest driver in economic performance,” said Michael Jacoby, Senior Managing Director and Shareholder of Phoenix. “Not surprisingly, lenders’ are more pessimistic in Q2/20, in part due to the devastating health, societal and economic impact of COVID-19.  What is clear, is that we face a multitude of unprecedented challenges during the next several quarters as the U.S. economy battles COVID-19.”

To see the full results of Phoenix’s “Lending Climate in America” Survey, please visit here.

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