D&B’s U.S. Economic Health TrackerMarch 2014

Paul Ballew, Chief Data & Analytics Officer, D&B

Tuesday, March 4, 2014 – 8:30 a.m.

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Small Business Health Index

• In February, Small Business Health Index (SBHI) showed additional softness in the small business sector, signaling some erosion in economic growth

• Wintry weather had a significant impact on small business performance• On a positive note the private sector healing process continues with

growing bright spots in the overall health of the small business community

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Economic slowdown is apparent…

• Key indicators including employment growth have signaled slowing economic activity in the recent months

• D&B’s SBHI, which remained fairly stable through the second half of 2013, has also declined

Jul 2012

Sep 2012

Nov 2012

Jan 2013

Mar 2013

May 2013

Jul 2013

Sep 2013

Nov 2013

Jan 20141.7%

1.8%

1.9%

2.0%

2.1%

2.2%

2.3%

90.0

92.0

94.0

96.0

98.0

100.0

102.0

Slowdown in SBHI and Employment Growth

Small Business Health Index: Overall (6 months prior, right)Nonfarm Private Payroll Employment, %YOY Change (left)

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…especially in some major industries

• D&B’s SBHI for industries and industry-specific indicators also show recent softening

Source: Haver Analytics and D&B Proprietary Data

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 2014-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

90.0

92.0

94.0

96.0

98.0

100.0

102.0

Decline in Retail Sales

Small Business Health Index: Retail (4 months prior, right)Total Retail Sales (Percent Change from previous month, left)

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• SBHI leads Real GDP growth by three quarters • SBHI values sliding down to the 90s hints at 2 to 2.5 percent

real GDP growth in the next few quarters

Declines in the Small Business Health Index suggest change in top-line growth outlook

Q4 2005

Q2 2006

Q4 2006

Q2 2007

Q4 2007

Q2 2008

Q4 2008

Q2 2009

Q4 2009

Q2 2010

Q4 2010

Q2 2011

Q4 2011

Q2 2012

Q4 2012

Q2 2013

Q4 2013

Q2 201450.0

60.0

70.0

80.0

90.0

100.0

110.0

120.0

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Real GDP growth and D&B's SBHI

Small Business Health Index (3 quarters prior, left)Real GDP Growth (YOY, right)

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Winter storms had an impact

• An unseasonably cold and snowy 2013-14 winter season affected almost all parts of the country

• Unusually cold temperatures hit the Northeast and Midwest and snow crippled the Southern states

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-20140

500

1000

1500

2000

2500

Atlanta, GA

Dec Jan

Tota

l Pre

cipi

tatio

n (in

ches

) for

the

mon

th

- Depicts snowfall during the month

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-20140

1000

2000

3000

4000

5000

6000

7000

New York, NY

Dec Jan

Heati

ng D

egre

e Da

ys M

onth

ly T

otal

Heating Degree Days measurement uses a 65 degree Fahrenheit base

Source: National Oceanic and Atmospheric Administration6

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The weather’s impact is clearly seen in theSBHI Industry breakdown…

• The SBHI declined slightly less than 3 percent in the past two months• Manufacturing was the only sector to show improvement• The largest decline was primarily driven by weather-sensitive sectors:

Retail, Housing, and Transportation

Personal Services

Automotive

Business Services

Construction

Transportation

Real Estate

Retail

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

Percent Decline in SBHI in recent months: By Industry

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…and geography

• Regional SBHI analysis shows declines occurring primarily in the Midwest and Northeast, two regions that endured the worst weather

• The South and West fared moderately better

Midwest Northeast South West-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%Percent Change in SBHI in the recent months: By Region

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U.S. Jobs Health

• Despite weather-driven Q1 sluggishness, D&B expects non-farm payroll employment to improve this month, albeit more slowly

• Major gains are expected in Manufacturing, Construction, and Business Services

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U.S. Business Health Index

• The overall US Business Health index improved in February for the fifth-consecutive month—reaching 53.1%

• This was the highest level recorded since the inception of the index in December 2010

• Importantly, small business is driving the improvement

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U.S. Business Health Index

• Year-over-year, the overall index increased 5.6 percentage points (pp.)• All three components recorded an increase on a 12-month basis in February; however,

the components recorded slower growth across the board compared to the prior month

May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-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.

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U.S. Business Health Index

• A closer look reveals that over the last three months small businesses (total employees < 100) have moved above 50% and into the improvement category

• The difference between small and large risk classes has significantly fallen as well. Small businesses are catching up to their larger counterparts

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

30

35

40

45

50

55

60

65

70

75

80

(Large Class)Employment >= 100(Small Class) Employment < 100

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

0

5

10

15

20

25

30

35

Difference (Large Minus Small)The gap is closing

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U.S. Business Health Index

• Viability has recently been a major growth contributor. The rise in the score can be attributed to lower Business Failures—which continue to decline each month

Feb-12

Mar-12

Apr-12

May-12

Jun-12Jul-1

2

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13Jul-1

3

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13

Jan-14

Feb-14

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Year-over-year change in business failures (3-month average)

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All four regions now reflect improvements in financial and balance sheet health

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

40

42

44

46

48

50

52

54

56

58

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Midwest

Northeast

West

South

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Summary

• D&B’s Small Business Health Index demonstrated additional erosion this month. However, it is clear that weather has played a factor and D&B will be tracking closely in the months ahead

• D&B expects non-farm payroll employment to edge up in February, although the impact of the slowdown (weather or otherwise) will dominate the numbers

• Despite tepid performance in the categories above, U.S. Business Health continued its upward climb in February. The financial and balance sheet health of the private sector remains a positive for the U.S. economy

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