More than One Reason

People sometimes forget that three factors influence the various aspects of our economic lives. It's one thing to say, for example, that demand for a product or service is weak, but what about the other two determinants? Is the price higher than what people are willing or able to pay? Is the supply too large relative to what the market can readily absorb? Assuming that only one of these aspects explains things can create a misleading picture. As the following Bloomberg report, "Lending to Small Businesses Fell in Third Quarter, Fed Says," suggests, tight credit conditions aren't the only reason why small business borrowing has been soft.

Lending to U.S. small businesses fell in the third quarter, showing the companies that account for more than half of total job creation are still struggling to emerge from the recession.

Net borrowing by non-financial non-corporate businesses shrank by $162.7 billion at an annual rate from July through September, the seventh consecutive quarterly decrease, according to the Federal Reserve’s Flow of Funds report released today in Washington. Still, it was the smallest drop of the contraction in lending that began in the first three months of 2009.

Small companies are “still hurting and working toward healing and not borrowing,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who worked on the report as a Fed economist. “They’re paying down bank loans, they’re paying down mortgages.”

And why might they be doing that?

“There’s not a strong desire to borrow aggressively because activity is still relatively modest,” she said.

Comments

[Emma]

"three factors influence the various aspects of our economic lives" I agree, but the more important ones are things like :-

1) Realising that there is a shadow government behind the real one we see.

2) They are going to keep taxing us, and small busienss to pay for the qe1, qe2, and other coming failing quantative easing programs.

3) We the people, do have a say, and have freedom of speech, but who is really there at the other end listening when so many people are asleep to what is happening.

The guys at forecast for tomorrow http://www.forecastfortomorrow.com are ones I listen to. They have lots of great analysis with this stuff, and their forecasts are scarily accurate.

[Subpoena Everything!]

How you going to get a good read on economy when everything is so conflicted?

Subpoena Everything!
The Democratic House should use its final weeks to demand every single document about the bank bailouts.

These central figures have been given a free pass about the events surrounding one of the largest, most secret wealth transfers in history. The lines of inquiry are obvious, and the information provided by the release of this data will be fascinating.

Do not forget: Virtually all the major players who brought us into the crisis are still there: the government officials, the CEOs, the investment bankers. The permanent plutocracy has survived unscathed. At a minimum, American citizens are entitled to know what happened.

http://www.slate.com/id/2276916?nav=wp

[crazy]

The Democrats cannot go on a witch hunt as a result of the bank bailouts as they were just as much to blame. Do you remember TARP? Most politicians voted for it even after all the phone calls and letters from the people said no. The Repubs were just as much to blame too. Lets clear out everyone that voted for it and put them in jail.

[ruralcounsel]

Lending to small business is just a proxy metric for (1) how many new small businesses are starting up that require debt, and (2) how many existing small businesses are expanding through use of debt. Neither of which really directly address whether small businesses are expanding and creating jobs. Perhaps the kind of expansion worth making doesn't require them to take on new or more debt? Perhaps there isn't enough business to warrant expansion (your point)?

More interesting is the question of the rate of defaults on new small business loans, which we won't know for some time. That would be a better indicator of economic activity.

I've always felt that most small businesses that are truly robust avoid taking on debt to begin with. It always seems a safer course to expand using current cash flow, if possible. Avoid paying interest when possible! Whether we are getting substantive "permanent" growth from viable small business isn't ever really shown by the level of lending banks are making to small businesses.