Monday, April 13, 2015

The SBA and hortatory



Strongly urging.

From Latin hortari (to urge).


Hortatory, pronounced hawr-tuh-tawr-ee, is probably not a word you hear a lot, but what it describes is common. When you're lying in bed in the morning, look for that little hortatory voice in your head, encouraging you to get up.

The hortatory activities of SBA 7(a) lenders have caused SBA loan volume to increase 25% over last year’s volume.  Six months through the fiscal year, SBA 7(a) loan approvals are now at $9,941,695,000.  This is the most since 2011.

SBA LIBOR Base Rate April 2015 = 3.18%
SBA Fixed Base Rate April 2015 = 4.91%
SBA 504 Loan Debenture Rate for March

The debenture rate is only 2.72% but note rate is 2.76% and the effective yield is 4.799%.       


The hortatory signals of rising interest rates from the Federal Reserve might soon be muted.

According to minutes of the Fed's March 17-18 meeting, several Federal Reserve policymakers said last month the central bank is likely to raise its benchmark interest rate in June but "others" said the move will probably occur "later in the year".  This debate occurred before the recent disappointing payroll figures for the month of March.  The minutes are consistent with Fed policymakers' forecasts, released after the mid-March meeting, that indicate the first bump in rates since 2006 is unlikely before September as the Fed awaits signs of a pickup in anemic inflation.

Keep your eyes and ears open for this week’s report on Industrial Production and Capacity Utilization.

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

Last month the Federal Reserve reported that capacity utilization decreased to 78.9 percent in February.

What does this mean?

I don’t know.

Capacity utilization may continue to slump as sales of durable goods at U.S. distributors in January and February suffered the biggest two-month drop since the recession's last gasp in early 2009, figures from the Commerce Department showed last Thursday.  As demand weakened, stockpiles built up, sending the inventory-to-sales ratio for those long-lasting goods up to an almost six-year high.  More order books at factories may be a bit leaner, which could leave manufacturing in a funk.

Weaker capacity utilization might be interpreted as a sign that the Federal Reserve’s 2% inflation target is still out of reach.

The softening in the Fed’s two main policy targets, namely inflation and employment, as reflected in March’s weak jobs report released on Good Friday, suggest that the Fed may delay an interest rate hike.

There should be more of a hortatory clamor for another holiday right about now.
According to the Federal Reserve, here is our remaining holidays for 2015:
Memorial Day May 25
*Independence Day July 4
Labor Day September 7
Columbus Day October 12
Veterans Day November 11
Thanksgiving Day November 26
Christmas Day December 25 
*Independence Day this year falls on a Saturday – so the Board of Governors is closed on July 3, 2015 and bankers get a three day weekend!

Our last holiday was Washington ’s Birthday on February 16th.  Memorial Day is a long way’s off.
Good Friday merits consideration but now another opportunity presents itself.
April 15th, 1947 was Opening Day for Major League Baseball and was the day Jackie Robinson made his major league debut.

April 15th is now celebrated, not as tax day, but as Jackie Robinson Day by Major League Baseball.  On that one day, all players, coaches, and managers on both teams, and the umpires, wear #42 on their jerseys, which makes scoring games virtually impossible.

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