Small Business Impacts

Small Business Impacts

Page 2 | Commercial Pulse | 10/01/21

Executive Summary

US Economic and Regulatory Highlights

• Economists see signs that lead the US into a longer period of elevated inflation, through 2023. As we see cooling begin, leveling off at an increase of 5.3% in August, delayed demand release and empty show rooms and shelves will keep costs and consumer prices at a heightened level.

• The Fed has been signaling when it will begin tapering its asset purchases through 2022, there is consensus among economists that interests rates would not be adjusted until 2023.

• Biden is asking for a more digestible spending package for the social safety net program initially priced at $3.5 trillion. The passage of the $1.2 trillion infrastructure bill, that was decoupled in order to keep momentum, is facing additional headwinds to passage, as the debt ceiling debate continues this week. October 18th will be the date the government will begin rolling back services

• US retail sales rose 0.7% in August. Consumers have delayed purchases for the last 18 months and are ready to spend. This pent-up spend energy is increasing sales while COVID cases were spiking in August and September. Small businesses are working hard to improve inventory going into the holiday shopping season. — Census Bureau, Experian

• Small business shipping costs are expected to rise as carriers increase overall fees and surcharges. Ports are full as companies work to rebuild inventories. Some are using air and other innovative and sometimes more expensive means of shipping as they wait for supply chains to catch up.

• Financial firms are feeling an acceleration of cyberattacks that focus on small dollar amounts over thousands of accounts. As fraudsters turn their attention back to creditors from government stimulus targets, lenders are reevaluating engagement tactics and non-traditional tools. — American Banker, Experian

US Credit Trend Highlights

• Section 1071 is a complex ask of banks and lenders to collect D&I information at application. This would require communication with consumers and businesses these service providers engage as well as place an additional level of scrutiny on the use of this collected data.

• Natural disaster and payment deferred consumer accommodation status volumes continue to drop as these payment deferral windows close for some consumers in August. Creditors have been evaluating how to factor more climate-risk data into their lending decisions. — CNBC, Experian

• The auto industry will continue to struggle as supply chain problems limit the ability to fulfill orders in a timely manner with higher margin but limited volume.

• Supply chain challenges continue to impact consumer portfolio growth in Mortgage (-19%) and auto (-7%) originations continue their downward slide as inventories remain low and replenishing those inventories becomes more expensive.

• Commercial card and installment products continue to see elevated origination volumes through the 2nd and 3rd quarters as delinquencies remain low as portfolios expand and target younger more risky businesses.

• Interest in investment in commercial BNPL products from large financial institutions is accelerating as niche lenders capitalize on consumer trends in lending.

Small Business Impacts

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How are consumers fairing Consumer delayed pandemic spend

Origination consumer card balance trends

Number of accounts with credit limit increases

Credit line increases outpacing decreases 2 to 1

Bankcard Card

Bankcard Card

Retail Card

Retail Card

Small Business Impacts

Page 4 | Commercial Pulse | 10/01/21

Annual inflation rate eased to 5.3% in AugustU.S. Bureau of Labor Statistics

August unemployment down to 5.2%

U.S. Bureau of Labor Statistics

Business confidence in August up slightly 0.5%

NFIB

Consumer sentiment up slightly 1% in September

University of Michigan

MacroeconomicOverview

10 million open positions in the US as heating economy prompts companies to accelerate hiring

Source: U.S. Bureau of Labor Statistics

Source: U.S. Bureau of Labor Statistics

August 2021

July 2021

Small Business Impacts

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ConstructionMarket pressures

Mortgage volumes slow as commodity prices and inventory slow applications

US Home Sales

Consumer 1st and 2nd Mortgage Trends

Source: U.S. Census Bureau, National Association of Realtors

Source: Experian

Small Business Impacts

Page 6 | Commercial Pulse | 10/01/21

ConstructionState of construction industry lending

Commercial Card Origination Trends

Commercial Installment Origination Trends

Small Business Impacts

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ConstructionSBA support for construction industry

Delinquency Trends

Small Business Support Originations

PPP (Pay-Check Protection Program) Government guaranteed loan program to support businesses during the pandemic.

7 (a) Up to $5 Million Fully amortizing government guaranteed loan up to $5MM for general business purposes.

SBA Express Loans Up to $350,000 A 50% government guaranteed loans up to 10 years. Uses can be for working capital, equipment, business acquisition, and facility expansion. Expedited application processing and quick turnaround. Requires only 1 year in business. *SBA guaranty fee waiver for Express Loans up to $350,000.

Small Business Impacts

Page 8 | Commercial Pulse | 10/01/21

ConstructionBoost to industry on the way?

March 2020 $8.3 Billion Coronavirus Preparedness and Response Supplemental Appropriations Act

Proposed July 2021 Budget including Social Infrastructure) ($3.5 Trillion)

September 2021 Supreme Court Ended Eviction Moratorium

March 2020 $3.4 Billion Families First Coronavirus Response Act (FFCRA)

March 2020 $2.3 Trillion Coronavirus Aid, Relief, and Economic Security Act (CARES ACT)

March 2021 $1.9 Trillion American Rescue Plan Act

August 2021 $1 Trillion Infrastructure Bill (Passed House)

April 2020 $484 Billion Paycheck Protection Program Flexibility Act

December 2020 $900 Billion Stimulus and Relief bill

Small Business Impacts

10/01/21 | Commercial Pulse | Page 9

Check out our Commercial Insights Hub, a one-stop location for up-to-date credit insights on U.S. small businesses. Click here to go to https://www.experian.com/business-information/commercial-insights-hub

What I found interesting

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About the author Brodie Oldham, Sr. Director of Commercial Data Science Experian Business Information Services

As Sr. Director of Analytics Consultancy, Brodie Oldham leads a team of statistical consultants with diverse skills to provide clients with leading edge analytic-driven information solutions, services, and actionable insights. He is an industry expert, who speaks on behalf of Experian at industry conferences.

The U.S. economy has been accelerating in 2021, but not without headwinds. September brought a spike in U.S. COVID spread, which created commercial supply chain challenges and cooling of consumer storefront engagement. These signals, along with global trade disputes, stimulus delays and commodity price volatility, lead economists to project a longer period of U.S. elevated inflation, through 2023, and slightly longer economic recovery target across industries.

U.S. construction companies are challenged by price volatility in materials. Lumber prices spiked more than 400% early in the year before falling during the summer months and now glass and aluminum are in short supply. This building material volatility has created a slowdown in new home construction, which is creating an environment of limited US supply. As home prices increase, new home buyer are priced out of markets, but small business owners have an opportunity to pull from this elevated equity.

What I am watching for will be a $1T infrastructure bill passage in October, which will fill the cash need of industries receiving this government spending windfall, making these businesses less likely to need additional private financing to continue to grow. As global supply chains begin to catch up to demand in mid 2022, U.S. housing inventory will improve, and home price acceleration will slow. Global supply chain improvement will also reduce shipping costs and inventory shortages which will allow consumer spend, which has been delayed during the pandemic but not forgotten, to be released. This slow release of consumer demand over a longer period of time will mean a tempered inflationary environment and slow steady growth trajectory for the U.S..

Creditors will monitor businesses and suppliers, through commercial monitoring, industry profiling, and trended performance, as new events and COVID policy decisions impact U.S. business productivity.

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