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

Tuesday, April 29, 2014 – 8:30AM

Economic Briefing

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#DnBEconBrief

Executive summary

• D&B’s proprietary measures on business activity continue to send conflicting messages about the US economy

• The Small Business Health Index stabilized in the most recent monthly reading but a stronger recovery was expected with the improvement in weather across the country

• On the employment front D&B continues to assess a gradual improvement with payrolls projected to grow in excess of 200,000 this month

• D&B’s Economic Health Tracker continues to flash positive signals regarding the financial health of the private sector across most verticals and geographies

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Small Business Health Index

• The Small Business Health Index stabilized in the current month following a number of months of erosion

• The indices for major industries show no significant movements• There are areas of improvement, like improved payment performance,

but overall most activity stabilized in the current month

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SBHI: Revisiting the past year by industry…

• The performance of the major industries have been tepid starting in the final quarter of 2013

• Some weather-sensitive sectors like Construction and Real Estate remain historically below average, but all sectors seem to similarly affected by the recent bout of harsh weather

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Mar 2013

Apr 2013

May 2013

Jun 2013

Jul 2013

Aug 2013

Sep 2013

Oct 2013

Nov 2013

Dec 2013

Jan 2014

Feb 2014

Mar 2014

70.0

80.0

90.0

100.0

110.0

120.0

Small Business Health Index by Sector: The past year

Overall Retail ConstructionBusiness Services Real Estate

...and geography

• While most top-performing MSAs show modest improvements in the past year, the performance of the slowest ones have plunged

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Q1 2013 Q2 2013 Q3 2013 Q4 201380.0

100.0

120.0

140.0

160.0

180.0

200.0

Small Business Health Index: Top performing MSAs

Miami, FL Atlanta, GANshvlle-Dvdson, TN San Antonio, TX

Q1 2013 Q2 2013 Q3 2013 Q4 201360.0

70.0

80.0

90.0

100.0

110.0

Small Business Health Index: Slowest Performing MSAs

Chicago, IL Phoenix, AZSalt Lk City-Ogden, UT Richmond, VA

On the brighter side, the recent erosion in payment performances seems to be stabilizing

• The increase in dollar delinquencies that have caused some concern during the recent months have fallen back to their pre-winter levels this month

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Jan 2012

Mar 2012

May 2012

Jul 2012

Sep 2012

Nov 2012

Jan 2013

Mar 2013

May 2013

Jul 2013

Sep 2013

Nov 2013

Jan 2014

Mar 2014

2.5%

2.7%

2.9%

3.1%

3.3%

3.5%

3.7%

3.9%

Small Business Dollar Delinquencies

Percent Dollars 91+ Days Past Due

Source: D&B Proprietary Data

Availability of credit to small businesses isimproving…

• Small Businesses are resorting to more conventional avenues of credit and decreasing credit card usage

Source: Job Openings and Labor Turnover Survey, (BLS), Haver Analytics and D&B Proprietary Data

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

1,000

1,500

2,000

2,500

3,000

3,500

4,000

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

Trend: Number of Loan Accounts

Private Sector Job Openings, thousands (Left)D&B Proprietary Number of Loan Accounts, thousands (2 quarters prior, Right)

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$17,400

$17,600

$17,800

$18,000

$18,200

$18,400

$18,600

$18,800

$19,000

Trend: Credit Card Current Balances

S&P US Private Label Credit Cards, Outstanding Balance, $M (Left)D&B Proprietary Credit Card Current Balances, $M (4 quarters prior, Right)

The Small Business Administration reports increases in amounts of loan approval and a reduction in charge off amounts for U.S. small businesses

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FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013$0

$5,000,000,000

$10,000,000,000

$15,000,000,000

$20,000,000,000

$25,000,000,000

$30,000,000,000

$35,000,000,000

7(A) regular Total --All types of loans

Source: The U.S. Small Business AdministrationSmal

l Bus

ines

s Loa

n Ap

prov

al A

mou

nt ($

)

FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,0007(A) regular Total --All types of loans

Source: The U.S. Small Business Administration

Smal

l Bus

ines

s Cha

rge

Off

Amou

nts (

$)

… and charge-off rates have plunged

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Q2 2010

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 20130.0%

1.0%

2.0%

3.0%

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

Charge-off rate on Business Loans

All Business Loans, Federal Reserve BoardSmall Business Loans, D&B database

Q1 2010

Q2 2010

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 20130.00%

0.40%

0.80%

1.20%

1.60%

Charge-off Rate on Credit Card Loans

• Charge-off rates on all small business loans have declined significantly in the past few years

U.S. Jobs Health

10#DnBEconBrief

• D&B expects 208,000 jobs to be added to Nonfarm Payroll• Manufacturing and Business Services feature the major gains• Retail begins to strengthen while Real Estate features losses this month

Nonfarm Payroll Employment saw severe declines during the last recession…

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-8,000

-7,000

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0

Nov 1948-Oct 1949 Jul 1953-May 1954 Aug 1957-Apr 1958 Apr 1960-Feb 1961 Dec 1969-Nov 1970 Nov 1973-Mar 1975

Jan 1980-Jul 1980 Jul 1981-Nov 1982 Jul 1990-Mar 1991 Mar 2001-Nov 2001 Dec 2007-Jun 2009

Source: Bureau of Labor Statistics

Tota

l non

farm

em

ploy

ees,

Tho

usan

ds S

A

Over seven million jobs were lost from the start of the recession to the end—more than the prior four recessions combined

... but a bounce back may be underway

12#DnBEconBrief

March 2014 marked a significant turning point in the labor market. All private nonfarm jobs that were lost since the beginning of the financial crisis were gained back

Dec-2007

Mar-2

008

Jun-2008

Sep-2008

Dec-2008

Mar-2

009

Jun-2009

Sep-2009

Dec-2009

Mar-2

010

Jun-2010

Sep-2010

Dec-2010

Mar-2

011

Jun-2011

Sep-2011

Dec-2011

Mar-2

012

Jun-2012

Sep-2012

Dec-2012

Mar-2

013

Jun-2013

Sep-2013

Dec-2013

Mar-2

014-10000

-8000

-6000

-4000

-2000

0

2000Cumulative Change in Total Private Employment (SA, Thous)

Source: Bureau of Labor Statistics

U.S. Business Health Index

• The overall US Business Health Index continued its upward trend in April to reach 53.7%. The index recorded its seventh-consecutive sequential increase. Once again reaching the highest level since the inception of the report in December 2010.

• Strong growth was recorded across the board while small businesses and separately business services notably accelerated in April

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• On a year-over-year basis the overall index rose 8.6 percent, accelerating from the previous month to reach its fastest pace since the report began in December 2010.

• The viability component continued to lift the overall index recording double digit year-over-year growth. In addition to viability the total loss predictor surged in April—signaling extreme risk has improved markedly from a year ago.

U.S. Business Health Index

14#DnBEconBrief

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

What’s happening among small businesses?

15#DnBEconBrief

• Small businesses’ balance sheets are stronger then compared to the past five years, they are improving at an increasing pace and “catching up” to their larger counterparts.

Dec-10Jan

-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11Jul-1

1

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11Jan

-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12Jul-1

2

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12Jan

-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13Jul-1

3

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13Jan

-14

Feb-14

Mar-14

Apr-14

38

40

42

44

46

48

50

52

54

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

(Small Class) Employment < 100 (Primary axis) (Small Class) Employment < 100 (Secondary axis)

Y/Y

Perc

enta

ge C

hg.

0102030

Difference (Overall Business Health Index--Large Companies Minus Small)

Summary

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• The Small Business Health Index stabilized this month with its value standing at 91.5 points. A stronger bounce back was expected and D&B will continue to examine the tepid improvement

• D&B expects some improvements in the Employment situation with some sectors like Retail picking up pace again

• The Overall Business Health Index continued to gather strength in April. As the U.S. economy continues to heal after the “great recession” business risk continues to move further into a low risk environment.

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