Consumer credit healing, but small-business outlook downbeat

A pair of surveys released this week projects a mixed outlook for two important drivers of the economy: generally stable or improving consumer credit health, but continued tough credit and business conditions for small companies.

Minneapolis-based FICO (NYSE:FICO) released its Quarterly Survey of Bank Risk Professionals reporting that:

• 38 percent of bankers surveyed expect credit card delinquencies to remain flat over the next six months.

• 31 percent expect delinquencies to fall and 30 percent expect them to rise.

• For car loans, 47 percent expect delinquencies to remain flat, 32 expected them to fall, and 21 percent expect them to rise over the next six months.

The survey last quarter also showed a more stable outlook for consumer debt.

“Bankers tend to be a conservative group, so the fact that their outlook from Q1 carried over to Q2 is a good sign,” said Andrew Jennings, chief analytics officer at FICO. “Although some consumers continue to struggle with debt, credit usage is under control at an aggregate level. Credit card delinquencies and charge-offs are at pre-recession levels.”

Meanwhile, the Federal Reserve Bank of New York, which tracks consumer credit, reported that total household delinquency rates as of Q1 had declined for the fifth consecutive quarter, to 10.5 percent of all outstanding non-mortgage consumer debt.

A total of $1.2 trillion in consumer debt was “delinquent” and an additional $890 billion “seriously delinquent” — 90 days or longer. Both balances have fallen 15 percent from a year earlier.

The bankers were more pessimistic about real estate, with only 18 percent expecting mortgage delinquencies to decline over the next six months, while 46 percent expect delinquencies to rise. That pessimism on mortgages, if it came true, would reverse the trend where loans delinquent 90 days or longer have dropped over the past five quarters and are at their lowest level since the beginning of 2009, according to the Mortgage Bankers Association.

Small-business outlook is cautious
The FICO survey found that 33 percent of bankers expect small-business loan delinquencies to rise over the next six months, while 28 percent expect them to decline. That is a reversal of last quarter’s survey results, FICO said, when a plurality of bankers expected delinquencies to drop.

In addition, 74 percent of the bankers expect credit demand to increase among small businesses, but only 46 percent expect “credit supply” to increase.  Translation: Bankers expect credit to remain tight for small-business owners.

Echoing the bankers’ subdued sentiment, a separate survey of small-business owners found a cautious outlook for the national economy overall, and slower revenue and earnings growth for their own firms than previously anticipated.

Vistage International, a small business CEO network, surveyed its members and found that 68 percent of firms expect revenue growth over the next 12 months, down from 76 percent expecting growth in the previous survey last quarter. Only 7 percent expect revenue declines, according to the survey.

Fifty percent of small-business CEOs expect profit increases over the coming 12 months, down from 57 percent last quarter and 54 percent a year ago. Actual profit declines were only expected by 15 percent, the same as a year ago, and less than half of the 34 percent recorded at the start of 2009. The majority of small-business CEOs expect their costs to increase but do not think they will be able to pass along those costs in price hikes.

The survey found the majority of small-business CEOs anticipate “a stagnating economy: growth too slow to support robust gains in employment or investment … Half of all firms put planned investments on hold due to the slowdown in economic growth,” Vistage said.

The FICO survey of 272 risk managers at banks throughout the United States was conducted by the Professional Risk Managers’ International Association in May and June, and the results were analyzed by the Columbia Business School.

The Vistage CEO Confidence Index Survey of 1,719 small-business CEOs was conducted June 14-24, under the direction of Dr. Richard Curtin, research professor at the University of Michigan.

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Comments (2)

  1. Submitted by Rohit Sood on 07/13/2011 - 12:27 pm.

    Brad, interesting surveys. However, as I mentioned in my blog (, having consumer bankers comment on the state of small business is not particularly productive. Consumer and business credit are sufficiently different (and different silos at almost every bank), that their opinion does not count for much. FICO should instead conduct a survey of just business and corporate credit officers to accurately gauge the sentiment regarding small business.


  2. Submitted by Bernice Vetsch on 07/13/2011 - 03:16 pm.

    And perhaps someone should survey small business owners to see how deeply the burden of providing employee health insurance cuts into not just their profits but into expansion plans or additional advertising.

    The second question in that survey would be to ask these same owners their opinion of a single-payer universal “Medicare for All” health care system for the state of Minnesota, one that would no longer tie insurance to employment.

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