Monday, September 22, 2014

The SBA and etiolate

1. To make pale by preventing exposure to sunlight.
2. To make weak by stunting the growth of.
3. To become pale, weak, or stunted.
>From French ├ętioler (to make pale), from Latin stipula (straw).

SBA lending will not etiolate.

Section 125 of the Continuing Appropriations Resolution  H.J. Res 124 ("the CR") that just passed Congress contains good news for the SBA 7(a) industry -- a $1 billion increase in the SBA's lending authority for both FY 2014 and FY 2015:  from $17.5 billion to $18.5 billion. 

Even with a 17 day "hiatus" at the start of the 2014 fiscal year, loan volume grew at such a rate that the $17.5 billion lending level would have been reached prior to September 30.

SBA LIBOR Base Rate September 2014 = 3.16%
SBA Fixed Base Rate September 2014 = 5.34%

SBA 504 Loan Debenture Rate for September  
The debenture rate is only 2.969% but note rate is 2.69% and the effective yield is 5.002%.

If interest rates go up, the economy just might etiolate and shrink.

As least that’s what the Federal Reserve was saying when they met last week on monetary policy.

They said that they would continue to keep rates low for a “considerable” time.

The day before they met, the Federal Reserve had announced that the capacity utilization rate had etiolated down 0.3 percentage point to 78.8 percent.

One of the Fed’s favorite gauges of the economy is the capacity utilization rate which measures how much plants and factories are being used.  The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often lead to inflationary pressures that would drive prices even higher.   Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.  The Federal Reserve typically won’t initiate increases in interest rates until then.

Here is what capacity utilization rates have done:

1997- 83.6
1998- 83.0
1999- 82.4
2000- 82.6
2001- 77.4
2002- 75.6
2003- 74.6
2004- 79.2
2005- 80.7
2006- 82.4
2007- 81.5
2008- 79.9
2009- 66.9
2010- 74.8
2011- 76.7
2012- 79.0
2013- 77.8
2014- 78.8

What does all this mean?

I don’t know.

This etiolation of industrial production and capacity utilization is the first such decline since January.  This comes on the heals of August’s report on job growth when employers added 142,000 jobs in August.  Before that employers had added 200,000-plus jobs for six straight months — the longest stretch since 1997. 

Capacity utilization is only 1.0 percentage point above its level of a year earlier and 1.3 percentage points below its long-run (1972–2013) average.

Interest rates will remain low for a, as the Federal Reserve puts it, “considerable” time.


Today is the last day of summer.

The days are etiolating.

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