Wednesday, April 30, 2014

SBA Loans Are Good For the Economy

Gross domestic product, the broadest measure of goods and services produced across the economy, increased at just a 0.1% annual pace for the first quarter of 2014.

That’s down from 2.6% in the fourth quarter and is the weakest pace since late 2012.

What happened?

This slowdown in GDP should not have come as a surprise to anyone who remembers that SBA 7(a) loans provide a substantial, tangible economic benefit that trickles throughout the economy.

Here is what GDP has been doing and this week’s interesting little table of data:

1st quarter 2014                0.1
4th quarter 2013              2.6%
3rd quarter 2013              4.1%
2nd quarter 2013             2.5%
1st quarter 2013              1.1
4th quarter 2012:             0.1%
3rd quarter 2012:             2.8%
2nd quarter 2012:          1.2%
1st quarter 2012:            3.7%

Contrast that with quarterly SBA 7(a) loan volume:
1st quarter 2014                $4,106,960,000
4th quarter 2013:             $3,989,696,000
3rd quarter 2013:             $5,371,662,000
2nd quarter 2013              $4,273,683,000
1st quarter 2013               $4,049,146,000

Notice the slump in 7(a) loan volume in the last quarter of 2013?  Thanks to the government shutdown back in October, SBA 7(a) loan approvals grinded to a halt and then it took some time to get back up and running.

The impact was manifested with the drop off in economic activity in the following quarter.

The correlation of SBA 7(a) loan approvals with our nation's economic performance appears to be quite strong.  Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for over six years using the Microsoft CORREL function. 

It came out to a statistically significant 0.86.


Tuesday, April 29, 2014

SBA Loans Are Good for the Economy

SBA 7(a) loan approvals totaled $388,467,000 for the week ending April 25th.

This is the best week of the month.

Month to date SBA 7(a) loan approvals are at $1,373,265,000.  

With three days to end the month, it might be hard to beat March's SBA 7(a) approvals of $1,590,460,000.

Keep in mind that the correlation coefficient between SBA 7(a) loan approvals and the Gross Domestic Product is a statistically significant 0.86.

Monday, April 28, 2014

SBA Loans Are Good for the Economy

The Bureau of Economic Analysis is scheduled to release the advance estimate for first quarter Gross Domestic Product (GDP)  on Wednesday, April 30th. 

Where will it be?

Here is what GDP has been doing and this week’s interesting little table of data:

4th quarter 2013              3.2%
3rd quarter 2013              4.1%
2nd quarter 2013             1.7%
1st quarter 2013              1.1
4th quarter 2012:             0.1%
3rd quarter 2012:             2.8%
2nd quarter 2012:          1.2%
1st quarter 2012:            3.7%

Contrast that with quarterly SBA 7(a) loan volume:
1st quarter 2014                $4,106,960,000
4th quarter 2013:             $3,989,696,000
3rd quarter 2013:             $5,371,662,000
2nd quarter 2013              $4,273,683,000
1st quarter 2013               $4,049,146,000
4TH quarter 2012             $4,173,790,000
3rd quarter 2012              $4,359,166,000
2nd quarter 2012              $4,039,042,000
1st quarter 2012                 $3,443,723,000

Notice how third quarter growth in GDP had jumped over the prior period?  Same thing happened with SBA 7(a) loan volume.

SBA 7(a) loan volume then fell off to end the year.  That might trickle into the first quarter's GDP.

The correlation of SBA 7(a) loan approvals with our nation's economic performance appears to be quite strong.  Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for over six years using the Microsoft CORREL function. 


It came out to a statistically significant 0.86.

Wednesday, April 23, 2014

SBA Loans Are Good for the Economy


SBA lenders and borrowers must have taken off for Spring break as only $316,934,000 in SBA 7(a) loans were approved for the week ending April 18th.  


That's a drop from the prior week's SBA 7(a) loan approvals totaling $371,645,000.  
Month to date SBA 7(a) loan approvals are at $984,798,000.  


With a week and a half to go to end the month, it will be hard to beat March's SBA 7(a) approvals of $1,590,460,000.

Keep in mind that the correlation coefficient between SBA 7(a) loan approvals and the Gross Domestic Product is a statistically significant 0.86.

Tuesday, April 22, 2014

The SBA and scrutate

scrutate
SKRU-tayt
To investigate.
From Latin scrutari (to examine).
 _______________________________________________

TIP OF THE WEEK 

Scrutation of the Code of Federal Regulations reveals that Section 120.102 was eliminated on April 21, 2014.  

That means the personal resources test is gone.  Owners are no longer required to inject personal liquid assets to reduce the amount of SBA guaranteed funds that would otherwise be needed.  

_____________________________________
Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate April 2014 = 3.15%
SBA Fixed Base Rate April 2014 = 5.51%
________________________________________

SBA 504 Loan Debenture Rate for April
The debenture rate is only 3.11% but note rate is 3.16% and the effective yield is 5.192%.
 ________________________________________________

AHEAD OF THE YIELD CURVE 
Is inflation beginning to rear its ugly head?

Not if you scrutate the data.

Last week the Bureau of Labor Statistics reported the Consumer Price Index rose 0.2% (2.4% annualized rate) in March.   Prices rose 1.5% for the 12 months ending in March. That is up from February’s year-over-year reading of 1.1%.  This jump from February to March is because a 0.2% drop in consumer prices in March 2012 dropped out of the calculation.

Really driving up the CPI was a 0.3% increase in shelter costs. On an annual basis, shelter costs were up 2.7%, the fastest pace in six years.

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- 79.2

What does all this mean?

I don’t know.

Last week the Fed reported that capacity utilization for total industry moved up 0.1 percentage point to 79.2 percent.  That’s up 12.3 percentage points from the record low set in June 2009 and 1.2 percentage points higher than a year prior.   Capacity utilization at 79.2% is still 0.9 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007.

The 30-year Treasury bond yield serves as somewhat of a long-term outlook on economic growth and inflation expectations. But the security has at times been an early indicator for movements in other Treasury maturities.  

April’s $13 billion auction of 30 year Treasury bonds sold at a yield of 3.525%.  In March the auction drew a yield of 3.630% compared to February’s yield of 3.69%.  January’s auction sold at a yield of 3.899% compared to December’s 3.90%.  

The yield curve is starting to flatten out a bit.  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.  A flat curve indicates weak growth, and conversely, a steep curve indicates strong growth.

Traders are betting the Federal Reserve won’t raise interest rates any time soon.

__________________________________________
OFF BASE
Scrutating the calendar meant yesterday was a holiday.
The third Monday in April is Patriot's Day commemorating the battles of Lexington and Concord, the first military engagements of the American Revolutionary War.
The day after the battle, John Adams left his home to ride along the battlefields. He declared that "the Die was cast, the Rubicon crossed."
“Crossing the Rubicon" is a metaphor for deliberately proceeding past a point of no return. The phrase originates with Julius Caesar's seizure of power in the Roman Republic in 49 BC. Roman generals were strictly forbidden from bringing their troops into the home territory of the Republic in Italy.  Caesar led his army across the Rubicon River, crossing from Gaul into Italy. After this, if he did not triumph, he would be executed. Therefore the term "the Rubicon" is used as a synonym to the "point of no return".

"Alea iacta est" ("The die is cast"), which is reportedly what Caesar said at the crossing of the Rubicon. This metaphor comes from gambling with dice: once the die or dice have been thrown, all bets are irrevocable, even before the dice have come to rest.

Wednesday, April 16, 2014

SBA 504 Loan Debenture Rate for April

SBA 504 Loan Debenture Rate for April       

The debenture rate is only 3.11% but note rate is 3.16% and the effective yield is 5.192%.

Tuesday, April 15, 2014

SBA Loans Are Good for the Economy

SBA 7(a) loan approvals totaled $371,645,000 for the week ending April 11th.  

The correlation coefficient between SBA 7(a) loan volume and the economy's gross domestic product is a statistically significant 0.86.

Tuesday, April 8, 2014

SBA Loans Are Good for the Economy

SBA 7(a) loan approvals totaled $383,299,000 for the week ending April 4th.

While slightly off from last week's pace, it is still robust compared to earlier in the year.

The correlation coefficient between SBA 7(a) loan volume and the economy's gross domestic product is a statistically significant 0.86.

Monday, April 7, 2014

The SBA and ineluctable

ineluctable
in-i-LUHK-tuh-buhl
Impossible to avoid: inescapable.
From Latin in- (not) + eluctari (to struggle out of), from ex- (out) + luctari (to struggle).
 _______________________________________________

TIP OF THE WEEK 

The ineluctable changes to SBA lending often require explanations or corrections.

The SBA recently released SBA Procedural Notice 5000-1310 which provides technical corrections to SOP 50-10-5(F).

For example, lenders no longer need a transcript of payment history on debt to be refinanced if it is not same institution debt.  

Real estate can also be valued at 85% of the market value for the calculation of “fully-secured” meaning no other collateral is required.

_____________________________________
Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate April 2014 = 3.15%
SBA Fixed Base Rate March 2014 = 5.51%
________________________________________

SBA 504 Loan Debenture Rate for March  
The debenture rate is only 3.21% but note rate is 3.26% and the effective yield is 5.289%.
 ________________________________________________

AHEAD OF THE YIELD CURVE 
Are higher interest rates ineluctable?

The U.S. has recovered all but 437,000 of the 8.7 million jobs lost as a result of the last recession.

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

March        192,000
February 197,000
January     144,000
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 this mean?

I don’t know.

The economy added 533 thousand jobs in the first quarter this year compared to 618 thousand in the first quarter of 2013

But the labor force has continued to increase over the last 6+ years, and there are still millions of workers unemployed.  The economy still has a long way to go as the number of people out of work for six months or longer is still at 3.739 million .

Friday’s employment report isn’t likely to shake the Federal Reserve from its strategy of slowly winding down its bond-buying program while keeping short-term interest rates pinned near zero well into 2015.

Treasury prices jumped Friday as the market grappled with easing expectations for Federal Reserve rate hikes.

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

Last month the Treasury Department sold $13 billion of 30-year bonds at a yield of 3.630% compared to February’s yield of 3.69%.  January’s auction sold at a yield of 3.899% compared to December’s 3.90%.  

On Friday, the 30-year Treasury bond yield fell 4 basis points to 3.585%.

The yield curve is starting to flatten out a bit.  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.  A flat curve indicates weak growth, and conversely, a steep curve indicates strong growth.

Traders are betting the Federal Reserve won’t raise interest rates any time soon.

__________________________________________
OFF BASE
Does it seem like Easter comes really late this year?
That’s because Easter always falls on the first Sunday following the full Moon after the vernal equinox.  Got that?
The alignment of the moon and earth cruelly pushed Easter out to late April.  
With no federally recognized holiday until Memorial Day at the end of May, many people look forward to Good Friday.
It’s a holiday for the stock market.   So why not for everyone else?   The day marks the crucifixion and death of Jesus Christ.  How could that possibly be considered good?  
Many believe this name simply evolved—as language does. Originally it was called "God's Friday."   This seems a reasonable conjecture, given that "goodbye" evolved from "God be with you."


Death is ineluctable and sooner or later everyone will have to say goodbye.

Friday, April 4, 2014

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate April 2014 = 3.15%
SBA Fixed Base Rate April 2014 = 5.51%
Lenders can charge up to 2.75% over these indices.

Thursday, April 3, 2014

SBA Loans Are Good For the Economy

SBA 7(a) loan approvals totaled $1,590,460,000 for the month of March.  

That’s up from February’s approvals of $1,323,495,000 which was an improvement from January's $1,193,005. 

Overall, that’s a nice pick-up over the fourth quarter of 2013:

1st quarter 2014                $4,106,960,000
4th quarter 2013:             $3,989,696,000
3rd quarter 2013:             $5,371,662,000
2nd quarter 2013              $4,273,683,000
1st quarter 2013               $4,049,146,000
4TH quarter 2012             $4,173,790,000
3rd quarter 2012              $4,359,166,000
2nd quarter 2012              $4,039,042,000
1st quarter 2012                 $3,443,723,000


Keep in mind that the correlation coefficient between SBA 7(a) loan approvals and our economy's Gross Domestic Product is a statistically significant 0.86.


Tuesday, April 1, 2014

SBA Loans Are Good for the Economy

SBA 7(a) loan volume is dramatically improving.

SBA 7(a) loan approvals for the week ending March 28th totaled $459,475,000.

The correlation coefficient between SBA 7(a) loan volume and the economy's gross domestic product is a statistically significant 0.86.