Friday, February 26, 2016

The SBA and uberous

Abundant; fruitful.

From Latin uber (rich, fruitful, abundant, etc.).


It is an uberous time for hotels and motels.

Even though January is one of the weakest periods of the year, average weekly hotel occupancy in 2016 is already above the average for ALL of 2009 (the worst year for hotels since the Depression)!

2015 was the best year on record for hotels and so far 2016 is tracking 2015.

Hotels and motels are one of the largest categories of SBA borrowers.

SBA LIBOR Base Rate February 2016 =3.43%
SBA Fixed Base Rate February 2016 = 5.00%

SBA 504 Loan Debenture Rate for February
The debenture rate is only 2.27% but note rate is 2.31% and the effective yield is 4.324%.

Are things getting so uberous that interest rates will keep going up?

Minutes from the January Federal Open Market Committee meeting show that officials were worried about a series of drags and disruptions that are likely to derail their December projection of four rate increases this year.

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.

Last month the Federal Reserve reported that capacity utilization rose to 77.1 percent from 76.4 percent in the prior month.   This is the first increase in three months.

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
2015- 76.5

What does all this mean?

I don’t know.

Uberous consumer spending propelled factory production with the biggest gain in the output of consumer goods since July on increases in both durables and nondurables.

Capacity utilization at 77.1% is still 2.9% below the average from 1972 to 2015 and well below the pre-recession level of 80.8% in December 2007.

Keep your eyes and ears open for Friday’s report on jobs for the month of February but don’t over-react.  Many economists expect payroll growth to naturally slow this year as the near-normal unemployment rate leaves a smaller pool of available workers. 

The Federal Reserve does not meet until March 15th and 16th

February 29th is a leap day. 

Leap days are needed to keep our calendar in alignment with the Earth's revolutions around the Sun.
It takes the Earth approximately 365.242189 days – or 365 days, 5 hours, 48 minutes, and 45 seconds – to circle once around the Sun. This called a tropical year. Without an extra day on February 29 nearly every four years, we would lose almost six hours every year. After only 100 years, our calendar would be off by approximately 24 days.

The calendar already seems off as the next official holiday recognized by the Federal Reserve is not until Memorial Day. 

If you need to find some pretense for a holiday before then here are some possibilities:

Saint Patrick’s Day- March 17th
Good Friday- March 25th
Opening Day Major League Baseball- April 4

April 4, 2016 seems appropriate as a holiday as it will also be Square Root Day.  Square Root Day is when both the day of the month and the month are the square root of the last two digits of the year.

The last square root day was 3/3/09 and the next one after 4/4/16 won’t be until 5/5/25.

Monday, February 8, 2016

The SBA and splenetic

Bad-tempered; spiteful.
From spleen, from French esplen, from Latin splen, from Greek splen. Earliest documented use: 1398.

In earlier times it was believed that four humors controlled human behavior and an imbalance resulted in disease. According to this thinking an excess of black bile secreted by the spleen resulted in melancholy or ill humor. Also, the spleen was considered to be the seat of emotions. To vent one's spleen was to vent one's anger.


If you are being splenetic perhaps you should get out and grab a bite to eat.

Did you know that restaurants are by far and away the leading recipient of SBA loans?

The National Restaurant Association’s Restaurant Performance Index (RPI) fell sharply in December.   For the first time in nearly three years, restaurant operators reported a net decline in same-store sales.  Forty-two percent of restaurant operators reported a same-store sales gain between December 2014 and December 2015, while 43 percent reported a sales decline.  Restaurant operators also reported a net decline in customer traffic results in December.   Please let me know if you would like a copy of the National Restaurant Association’s report for December on its Restaurant Performance Index.

SBA LIBOR Base Rate February 2016 =3.43%
SBA Fixed Base Rate February 2016 = 5.00%
SBA 504 Loan Debenture Rate for January
The debenture rate is only 2.78% but note rate is 2.82869% and the effective yield is 4.831%.

Don’t get all splenetic about declining restaurant sales in December.  It was probably just a glitch as restaurants added 47,000 jobs in January.

Payroll growth slowed in January after a string of impressive gains as employers added 151,000 jobs, led by gains in retail, restaurants, health care and manufacturing.  Retailers added 58,000 jobs; restaurants, 47,000; and health care, 37,000. Perhaps most surprising was a 29,000 gain in hiring at manufacturers, the biggest increase since August 2013.

Treasury yields spiked after the jobs report, then tumbled toward a one-year low and rose again to trade slightly higher on the day in all maturities.

The yield on 2-year Treasuries was up 1.6 basis point on the day to 0.730%, suggesting the market expects a slightly more aggressive pace of interest-rate hikes by the Federal Reserve than it previously did.  Short-term Treasury yields are more vulnerable to changes in the Fed-funds rate, and tend to spike when the market’s rate-hike expectations increase.

At the other end of the yield curve, the 30 year Treasury bond was up 1.5 basis point to 2.713%.

Keep your eyes and ears open for this week’s auction of 30 year Treasury bonds.

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table:
2001- 5.49
2002- 5.43
2003- ND
2004- ND
2005- ND
2006- 4.91
2007- 4.84
2008- 4.18
2009- 3.89
2010- 4.61
2011- 2.89
2012- 2.77
2013- 3.25
2014- 3.97
2015- 2.91

What does all this mean?

I don’t know.

Last month’s30-year bond auction was strong and bidding was tight as the high yield was 2.905 percent.

Since then financial markets have been somewhat splenetic as the 30 year bond yield has drifted down about 20 basis points.

The yield curve is getting flatter.  The slope of the yield curve—the difference between the yields on short- and long-term maturity bonds—has achieved some notoriety as a simple forecaster of economic growth. The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession in about a year.  More generally, a flat curve indicates weak growth and conversely, a steep curve indicates strong growth.

The implication is that concerns of recession are not being signaled and the pace of any interest rate increases will be fairly modest.

No reason to be splenetic.

Another reason to not be splenetic is that we have a three day weekend coming!

According to the Federal Reserve, here are our remaining holidays for 2016:

Washington's Birthday February 15
Memorial Day May 30
Independence Day July 4
Labor Day September 5
Columbus Day October 10
Veterans Day November 11
Thanksgiving Day November 24
Christmas Day December 26