The SBA and PROliferate

proliferate
pruh-LIF-uh-rayt
1 : to grow or cause to grow by rapid production of new parts, cells, buds, or offspring
2 : to increase or cause to increase in number: multiply

Proliferate is a back-formation of proliferation. That means that proliferation came first (we borrowed it from French in the 18th century) and was later shortened to form the verb proliferate. Ultimately these terms come from Latin. The French adjective prolifère ("reproducing freely") comes from the Latin noun proles and the Latin combining form -fer. Proles means "offspring" or "descendants," and -fer means "bearing."

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TIP OF THE WEEK

Have you noticed the proliferation of shared work spaces?  You’ve got WeWork and now CBRE has now begun to offer a shared flexible work space option called Hana.  The primary attraction is the short lease commitment.

Many of the tenants have been larger publicly traded companies whose motivation was driven by the new accounting standard for leases ASC 842.  Under the old rule ASC 840, FASB permitted operating leases to be reported only in the footnotes of corporate financial statements. Under ASC 842, the only leases that are exempt from the capitalization requirement are short-term leases less than or equal to 12 months in length.

Prompted by the Center for Plain English Accounting (yes, there is such a thing)  the American Institute of CPAs wrote to the Financial Accounting Standards Board last week seeking a delay in the implementation of the new lease accounting standard. The standard—which is already in effect for public firms—is set to take effect for private companies on Jan. 1, 2020.  Going forward, under the new standards, all classifications of leases, operating and finance, will be capitalized on the balance sheet unless it was a short term lease less than 12 months.  This would cause an increase in assets and liabilities on the balance sheet potentially violating debt covenants.  Many private companies will have to review loan covenant calculations to ensure the new standard does not cause technical defaults and likely will have to work with lenders and users to modify debt and other financial covenants as needed in response to the effects of the new standard.

Keep in mind that co-working spaces and executive suites continue to be INELIGIBLE for SBA financial assistance.

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Indices:

PRIME RATE= 5.50%

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SBA 504 Loan Debenture Rate for May

For 20 year debentures, the debenture rate is only 2.88% but note rate is 2.929% and the effective yield is 4.265%.

For 25 year debentures, the debenture rate is only 3.07% but note rate is 3.109% and the effective yield is 4.391%.

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AHEAD OF THE YIELD CURVE

Jobs continue to proliferate as employers added a booming 263,000 jobs in April.  The unemployment rate fell to a nearly 50-year low of 3.6%.   There are 7.5 million open jobs available while there are about 6.2 million people still unemployed.

Think of that — there are more job openings today than there are unemployed workers.

There are currently 0.8 unemployed workers for every available job.   Prior to the recession this ratio stood at 1.7 so the labor market is clearly in far better shape now than it was prior to the recession.  Further, at the end of the recession there were 6.6 times as many unemployed workers as there were job offers so, clearly, the job market has come a long ways in the past 9-1/2 years.

Here is a summary of net payroll employment and this week’s interesting little table of data:

April       263,000
March        189,000
February     56,000
January    311,000
2018        2,674,000
2017      2,110,000
2016      2,160,000
2015     2,740,000
2014     3,116,000
2013     2,074,000
2012     2,193,000
2011     2,103,000
2010    1,022,000
2009    -5,052,000
2008    -3,617,000
2007    1,115,000
2006    2,071,000
2005    2,484,000
2004    2,019,000

What does all this mean?

I don’t know.

Despite the stellar employment gains, average hourly earnings rose by a muted 0.2%.

The economy might not be quite as robust as the latest economic figures suggest. The first quarter’s healthy 3.2% annual growth rate was pumped up by some temporary factors – from a surge in restocking of companies’ inventories to a narrowing of the U.S. trade deficit – that are expected to reverse themselves. If so, this would diminish the pace of growth and likely hold down inflation.

Industrial production fell 0.5 percent in April.  This caused capacity utilization to decline 0.6 percentage point in April to 77.9 percent.  The key takeaway from the report is that it marked the fourth straight month in which there was no growth in manufacturing output.

The yield curve briefly inverted again with the 90 day treasury bill trading above the 10 year note.  The yield curve last inverted on March 22.

Investors foresee zero probability that the Fed will raise rates anytime this year.

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OFF BASE

A three day weekend is coming!

According to the Federal Reserve statistical release K.8, here are our remaining holidays for 2019:
Memorial Day May 27
Independence Day July 4
Labor Day September 2
Columbus Day October 14
Veterans Day November 11
Thanksgiving Day November 28
Christmas Day December 25