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Paul Ballew, Chief Data & Analytic Officer, D&B
Tuesday, April 1, 2014 – 8:30AM
Economic Briefing
Follow us on Twitter #DnBEconomy
#DnBEconBrief
Overview
• The Small Business Health Index erode further during the current month and has prompted D&B to become a bit more cautious on the economic outlook.
• Abnormally poor weather remains a factor and therefore Q2 readings will provide a better assessment of the underlying strength of the recovery.
• Employment growth is expected to continue to rebound in March with payroll employment growth of close to 200,000
• The Business Health Tracker remains at record levels and is up 5% y-o-y reflecting once again the strong balance sheet health of the private sector.
2#DnBEconBrief
The economy is still reeling from short term factors that caused a slowdown in the recent months
Jan 2012
Feb 2012
Mar 2012
Apr 2012
May 2012
Jun 2012
Jul 2012
Aug 2012
Sep 2012
Oct 2012
Nov 2012
Dec 2012
Jan 2013
Feb 2013
Mar 2013
Apr 2013
May 2013
Jun 2013
Jul 2013
Aug 2013
Sep 2013
Oct 2013
Nov 2013
Dec 2013
Jan 2014
Feb 201452.0
54.0
56.0
58.0
60.0
84.0
88.0
92.0
96.0
100.0
104.0
SBHI shows Slowdown in Business Activity
Small Business Health Index: Overall (right)ISM Nonmanufacturing Business Activity Index: 3-month Moving Avg.(Left)
3
• The drop in the SBHI signals the economy is still recovering from the long harsh winter
• The weather has started improving but the drag that it has left on the economy remains
#DnBEconBrief
On a more positive note the improvement in small business health over the last two years has become more pervasive across verticals
Jan 2013
Feb 2013
Mar 2013
Apr 2013
May 2013
Jun 2013
Jul 2013
Aug 2013
Sep 2013
Oct 2013
Nov 2013
Dec 2013
Jan 2014
Feb 20146.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
Standard Deviation of SBHI by Vertical • There is a steady decrease in the standard deviation of SBHI by vertical which is an indication of correction in the structural imbalance
• The imbalance in small business performance by vertical continues to decline and stands at its lowest since January 2013
4#DnBEconBrief
By geography, the imbalance seems to be more pronounced
Atlanta,GA New Orleans,LA Miami,FL Nashvl-Dvdsn,TN San Antonio,TX0.0
40.0
80.0
120.0
160.0
200.0187.8
168.4
139.8
123.4 122.5
Small Business Health Index: Top 5 MSAs
Chicago
,IL
Richmond,VA
Salt L
k Cty-
Ogden
,UT
Hartford
,CT
Phoenix,
AZ0.0
40.0
80.0
120.0
160.0
200.0
76.9 76.9 77.5 77.8 81.0
Small Business Health Index: Bottom 5 MSAs
• There remain large disparities between the highest and the lowest performing MSAs
5#DnBEconBrief
… with marked differences in growth patterns
2010 2011 2012 20130%
10%
20%
30%
40%
50%
60%
70%
80%
Atlanta, GA MSA: YOY Change in SBHI
2010 2011 2012 2013-15%
-5%
5%
15%
25%
Chicago, IL MSA: YOY Change in SBHI
• While the leading geographies have taken off growth during the past year, the lagging ones have slowed down
6#DnBEconBrief
And unlike performance across industry verticals the dispersion by MSA has partially reversed course
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 20130.0
5.0
10.0
15.0
20.0
25.0
30.0
Standard Deviation of SBHI by MSA• The dispersion between MSAs fell sharply early in the recovery period and has remained stable until early 2013
• The slight increase in dispersion during the past year may be a reflection of the shifting growth patterns among MSAs
7#DnBEconBrief
U.S. Jobs Health
• Based on the underlying factors, D&B expects Nonfarm payroll employment to improve this month, building on the trend from last month
• All sectors are expected to gain, with the notable being Retail and Construction that have been held back by the weather
8#DnBEconBrief
U.S. Business Health Index
• The overall US Business Health Index slightly increased in March to reach 53.15%. The index recorded its sixth-consecutive sequential increase and its ninth consecutive month above the important 50% “neutral” level.
• Again, this was the highest level recorded since the inception of the index in December 2010
9#DnBEconBrief
• On a year-over-year basis the overall index increased 5.0 percentage points, a slightly lower growth rate compared to the previous two months.
• All three components increased on a 12-month basis in March. The Viability component continued to record double digit year-over-year growth albeit at a slower pace.
May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Overall Viability Delinquency Total Loss Predictor
Note: Delinquency rates and the Total Loss Predictor are inverted to capture the effects that lower rates will raise the overall score.
Y/Y
Perc
enta
ge C
hg.
U.S. Business Health Index
10#DnBEconBrief
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
2025303540455055
Variance by industry
Dec-10
Mar-1
1Jun-11
Sep-11
Dec-11
Mar-1
2Jun-12
Sep-12
Dec-12
Mar-1
3Jun-13
Sep-13
Dec-13
Mar-1
4100
150
200
250
300
350
400
450Variance by employment size
Dec-10
Mar-1
1Jun-11
Sep-11
Dec-11
Mar-1
2Jun-12
Sep-12
Dec-12
Mar-1
3Jun-13
Sep-13
Dec-13
Mar-1
42
3
4
5
6
7
8
9
10Variance by geography
The virtuous cycle continues—Variance among all components in the Overall Business Health Index is dropping
11#DnBEconBrief
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
0
10
20
30
40
50
60
Retail--Business Health Index (3-month moving average)
Hard hit sectors like retail have made significant progress over the last year despite the lack of robust consumer spending growth
12#DnBEconBrief
Dec-2010
Jan-2011
Feb-2011
Mar-2011
Apr-2011
May-2011
Jun-2011
Jul-2011
Aug-2011
Sep-2011
Oct-2011
Nov-2011
Dec-2011
Jan-2012
Feb-2012
Mar-2012
Apr-2012
May-2012
Jun-2012
Jul-2012
Aug-2012
Sep-2012
Oct-2012
Nov-2012
Dec-2012
Jan-2013
Feb-2013
Mar-2013
Apr-2013
May-2013
Jun-2013
Jul-2013
Aug-2013
Sep-2013
Oct-2013
Nov-2013
Dec-2013
Jan-2014
Feb-2014
400
600
800
1000
1200
New Private Housing Units Authorized by Building Permit (SAAR, Thous.Units) Housing Starts (SAAR, Thous.Units)
Source: U.S. Census Bureau
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
46
48
50
52
54
56
58
Real Estate
Real estate firms are also well positioned even as the moderate recovery in housing has stalled a bit
13#DnBEconBrief
• Despite a drop in the SBHI that has been remarkably stable for several months D&B continues to project growth of close to 3%. The drop does warrant attention and clearer readings in Q2 have become very important
• On a positive note industries that have lagged the recovery are experiencing improvement and are poised to benefit from an acceleration in economic growth
• Correction of structural imbalances is the pre-requisite for sustained growth and it seems the economy has started on this journey
• US businesses continued to broadly strengthen their balance sheet health in March. The Business Health Index reiterates the same story: many lagging industries and regions are performing at an improved pace and are “catching up” to their comparable counterparts.
Summary
14#DnBEconBrief
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15
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