The SBA and PROfundity

profundity

pro·fun·di·ty

intellectual depth

something profound or abstruse

the quality or state of being profound or deep

 

from Latin profunditat-, profunditas depth, from profundus

 

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TIP OF THE WEEK

 

Some profundity with SBA 7(a) loan volume.

 

Through April 30th SBA 7(a) loan approvals totaled $14,797,717,000.   That is almost an 11% increase from the same period a year ago.

 

SBA 7(a) loan approval volume has been prospicient about the direction of the economy.

 

Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for over nine years using the Microsoft CORREL function.  It came out to a statistically significant 0.86.

 

Business acquisitions had accounted for almost 25% of all 7(a) loans three years ago but now account for 20% of the total.

 

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Indices:

PRIME RATE= 8.25%

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SBA 504 Loan Debenture Rate for June

 

For 20 year debentures, the debenture rate is only 4.91% but note rate is 4.98196% and the effective yield is 6.388%.

For 25 year debentures, the debenture rate is only 4.93% but note rate is 4.98238% and the effective yield is 6.334%.

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AHEAD OF THE YIELD CURVE

 

Profundity from the Federal Reserve’s last statement on monetary policy when they eliminated the previous language that said, "The Committee anticipates that some additional policy firming may be appropriate."

 

They meet this week on June 13 – 14.

 

Their inflation-fighting patience however is being tested by the strength of job growth.

 

Total nonfarm payroll employment increased by 339,000 in May.

 

Manufacturing, which has contracted for six straight months, cut 2,000 jobs.

 

The Federal Reserve watches manufacturing closely.    One of the Federal Reserve’s preferred measures of inflation is the capacity utilization rate.

 

Normally the Fed does not feel there are inflationary pressures until the capacity utilization rate is about 82%.

 

Here is what capacity utilization has been doing and this week interesting little table of data:

 

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

2016- 75.4

2017- 76.2

2018- 78.5

2019- 79.7

2020- 74.5

2021- 76.4

2022- 80.0

 

What does all this mean?

 

I don’t know.

 

Keep your eyes and ears open for this week’s release on capacity utilization.    It is the day after the Federal Reserve meets on monetary policy.

 

Capacity utilization edged up to 79.7 percent last month, a rate that is equal to its long-run (1972–2022) average.

 

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OFF BASE

 

A three day weekend approaches.

 

Yes, June 19th is a holiday.   Juneteenth.

 

The Federal Reserve has proscribed banks from being open on the following days:

 

Juneteenth      June 19

Independence Day July 4

Labor Day September 4

Columbus Day October 9

Veterans Day November 11

Thanksgiving Day November 23

Christmas Day December 25