Credit conditions for U.S. small businesses made a solid leap in the first quarter of the year despite the threat of heavier tax burdens and sequestration spending cuts, according to a study unveiled this month by Experian and Moody’s Analytics. But that’s not to say such an improvement should be relied upon during the middle of this year.
The latest Experian/Moody's Analytics Small Business Credit Index climbed 5.7 points in Q12013 to 109, up from 104.3 in the previous quarter. Much of the improvement, characterized as a “welcome surprise” to the authors, was driven by lower delinquency rates and stronger consumer spending. However, even analysts involved in the study themselves warned to not get overly exuberant…not just yet anyway.
“Conditions are improving, but only slowly and unevenly across the country,” said Moody’s Analytics Chief Economist Mark Zandi. “Much further progress this year will be difficult given the likely fallout from the sizable tax increases and government spending cuts, but conditions are expected to improve next year once these fiscal headwinds begin to fade.”
In addition, the study illustrated that improvements in credit quality are tied less to real improvement in U.S. businesses and more toward managing, “keeping a tight lid on,” labor costs. Within the statistics, increases in delinquent balances were particularly noticeable among the smallest companies, those with fewer than five employees, and the eastern portion of the country appears to be struggling more than other regions because of the weak employment situation, lack of import demand in the European Union and the federal cuts emanating out of Washington, DC.
Experian and Moody’s added that the full effect of federal spending cuts likely wasn’t felt fully in the Q1 statistics, and that it could come during the next two quarters.