d&b us economic health briefing (june 3, 2014)

Economic Briefing

D&B’s Monthly

Presented by

Paul Ballew, D&B Chief Data & Analytics Officer and Chief Economist

Tuesday, June 3, 2014 – 11:30 AM

Follow us on Twitter @DnBEconomy | #DnBEconBrief

Executive Summary

Our June briefing covers the performance of the U.S. economy in the

month of May 2014.

The U.S. economic expansion continues to send mixed signals regarding

its underlying pace

D&B proprietary metrics also remain conflicted–activity has improved in

some areas of the U.S. economy while other measures continue to lag

Measures around small business activity remain the most conflicted and

prompt us to downgrade the outlook for 2014

A number of positives remain for the U.S. expansion sufficient to make our

downgrade mild. D&B maintains its outlook of cautious optimism as we

prepare to step into the second half on 2014

2 Follow us on Twitter @DnBEconomy | #DnBEconBrief

The Macro Message at Home Remains

Conflicted…

3

Quickening Pace April 2013 Y/Y Change Apr 2014 Y/Y Change

Total Nonfarm Payroll (+1.6%) (+1.7%)

New Orders (+3.3%) (+7.1%)

Industrial Production (+2.6%) (3.4%)

Slowing Pace April 2013 Y/Y Change

Apr 2014 Y/Y Change

Real GDP Growth

Q1-2013 (+3.1%) Q1-2014 (+2.0%)

Real Retail Sales (+2.53%) (+2.05%)

New Home Sales (+27.7%) (-4.2%)

Source: Various Statistical Agencies


…GDP Growth has been Lackluster and

Uneven Over the Past Five Years…

4

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Q/Q

Pe

rce

nta

ge C

hg.

Source: Bureau of Economic Analysis

Real Gross Domestic Product (SAAR, %Chg)

Annual Growth Rates

2010

2.51%

2011

1.85%

2012

2.78% 2013

1.88%


…and Headwinds Continue to Disrupt the

Global Economy

Softer global economic growth

Geo-political uncertainty

Monetary policy uncertainty

Underlying structural issues (i.e., the labor and housing markets) and

productivity growth remain

5

Source: Sergei Grits/Associated Press Source: Reuters


Small Business Health Index

The Small Business Health Index stagnated once again in the most recent reading—projecting economic growth of 2% or less

Most industry indices remain unchanged, reflecting limited acceleration after the subdued first quarter

A number of positives help offset the negative outlook for small business, including improvement in financial health. In addition, supplemental measures like spending and hiring activity offer some support for a second-half acceleration


Small Business Health Index: Past

Year Trends

Both the overall index and the indices for major industries have remained

remarkably stable in the past two months after taking a dip in Feb. 2014

7

70.0

80.0

90.0

100.0

110.0

120.0Small Business Health Index: Overall and Major Industries

Overall Manufacturing Retail

Real Estate Business Services Construction

Source: D&B Proprietary Data


Other Proprietary Metrics Show Areas of

Increased Activity Including Lending…

8

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

16.0%

2012 2012 2013 2013

Small Business Loan and Credit Card Accounts: YOY Change

Alaska California Texas Wyoming

Loans

Credit Card

Loans

Credit Card

• Lending activity among small businesses shows continuous improvement overall

and within most geographies



$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

$1,600

$1,700Total Balance on All Open Accounts and C&I Loans ($B)

C&I Loans: All Commercial Banks (Left)

Total Balance on All Open Accounts (Right)

…Employment and Spending

• Small Businesses have always been and continue to be a key source of

employment generation in the U.S. economy

• Small Business spending (past 12 months) picked up pace in the second

half of 2013

9

Source: Bureau of Labor Statistics and D&B Proprietary Data

0

2,000

4,000

6,000

8,000

10,000

124,000

128,000

132,000

136,000

140,000

Small Business Job Postings and Nonfarm Payroll Employment

Nonfarm Payroll Employment (ths, Left)

Job Postings by Small Businesses: All Sectors (ths, Right)

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Small Business: Total Spend in the Past 12 Months


U.S. Jobs Health

• D&B proprietary measures indicate

297,000 jobs were added to Non-farm

Payrolls

• Manufacturing and Business Services

continue to show major gains this

month

• Sluggishness in Housing and Retail is

expected in this month’s employment

numbers compared to the previous

month


• The overall U.S. Business Health

Index trended higher in May to

reach 54.1%. The index recorded

its eighth consecutive sequential

increase, once again reaching the

highest level since the inception

of the report in December 2010

• Strong growth in the small

business category (less than 100

employees) continued to lift the

overall index

11

U.S. Business Health Index


12

U.S. Business Health Index

• On a 12-month basis the overall business health index rose 7.3%, slowing slightly from

the prior month

• Strong growth in the viability (+15.1% year-over-year) component continued to lift the

index. Sequential and year-over-year growth among the total loss predictor and

delinquency subcomponents also raised the overall index

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14

Y/Y

Pe

rce

nta

ge C

hg.

Note: Delinquency rates and the Total Loss Predictor are inverted to capture the effects that lower rates will raise the overall score.

Overall Viability Delinquency Total Loss Predictor

Source: D&B Proprietary Data Follow us on Twitter @DnBEconomy | #DnBEconBrief

Business Stability has Significantly

Improved…

Overall, the Viability of Businesses in the U.S. has continuously increased

throughout the past year

13

30,000

40,000

50,000

60,000

70,000

46

48

50

52

54

56 Viability Index and Number of Business Failures

Viability Index (Left) Failures



14

…and Small Businesses Continue to

Strengthen

• Small Businesses are rapidly strengthening their balance sheets and catching up to their

larger counterparts as far as stability is concerned

20

30

40

50

60

70

80

90

Dec

-10

Mar

-11

Jun

-11

Sep

-11

Dec

-11

Mar

-12

Jun

-12

Sep

-12

Dec

-12

Mar

-13

Jun

-13

Sep

-13

Dec

-13

Mar

-14

(Large Class )Employment >= 100

(Small Class) Employment < 100

-10%

-5%

0%

5%

10%

15%

20%

Feb

-12

Ap

r-1

2

Jun

-12

Au

g-1

2

Oct

-12

Dec

-12

Feb

-13

Ap

r-1

3

Jun

-13

Au

g-1

3

Oct

-13

Dec

-13

Feb

-14

Ap

r-1

4

Y/Y

% C

hg.

(Large Class) Employment >= 100 (3-Month Average)

(Small Class) Employment < 100 (3-Month Average)



15

D&B Proprietary Scores Show a Decline in

Severe Risk

Low Risk (+2.29%)

Med. Risk (+0.60%)

High Risk (-2.89%)

Low Risk (+1.37%)

Med. Risk (+0.70%)

High Risk (-2.08%)

25.83%

54.75%

19.42% Total Loss Predictor

April 2012

28.13%

55.35%

16.53%

April 2014

Delinquency Predictor 32.64%

36.50%

30.86% 34.01%

37.21%

28.78%

Viability Score

31.98%

34.65%

33.37% Low Risk (+10.70%)

Med. Risk (+2.85%)

High Risk (-13.55%)

42.68%

37.50%

19.82%


16

Summary

• The outlook for the U.S. recovery remains mixed. Although we’ve seen

improvement in important macroeconomic indicators and proprietary data, the

U.S. economy lacks conviction.

• Other headwinds, both domestic and international, could disrupt future growth.

Mixed Signals from D&B’s Proprietary Indicators:

• The Small Business Health Index remains stable for the second consecutive

month–delinquency subcomponents show significant gains on a year-over-year

basis and new tracking measures provide some grounds for optimism.

• U.S. Jobs Health remains at its peak as the economy is expected to create close

to 300,000 jobs this month. Some sectors continue to show improvement, while

others feature tepid gains.

• The U.S. Business Health Index continues to gather strength, reflecting

continued balance sheet improvement across the private sector


17

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d&b us economic health briefing (june 3, 2014)

Economy & Finance

small business health

small business activity

overall business health

small business loan

small business category

small business job postings

small businesses

overall index