Debt demand datapoint of the day

By Felix Salmon
February 16, 2010
startling datapoint on the demand side:

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Insofar as there’s a decline in lending going on these days, it’s a function of both lower demand for credit and of reduced willingness to lend on the part of banks. Bloomberg has a startling datapoint on the demand side:

Caterpillar Inc., Eaton Corp., Walgreen Co. and General Electric Co. are among 256 companies that ended last quarter with $518 billion more cash than a year earlier after cutting capital spending by 43 percent.

But hang on a minute. Bloomberg here seems to have taken the S&P 500 and deliberately chosen the companies which raised cash and cut spending, while ignoring those which went the other way. In order to put these latest figures in perspective, I think it would only be fair to run the same exercise for previous years, to see what the equivalent figures have been historically.

What’s more, to the extent that some S&P 500 companies have historically borrowed and spent too much, thanks to abundant credit, it might actually be a good thing that they’re bolstering their cash cushions and moving to a more sustainable footing. Well, a good thing for the companies, anyway. Not such a good thing for employment.

That said, gains in employment have rarely if ever been driven by hiring in the S&P 500. If you want to see bank loans turned into jobs, the key sector to look at is not big companies but small ones. And when it comes to them, I think that the decline in bank lending is much more of a supply issue than it is with the S&P 500. If banks were more willing to lend to small businesses, I think that we would certainly see more loans taken out — and higher employment as a result.


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Almost all small businesses should be financed through equity and personal savings – not credit.

Want job creation? Lower the cost of labor by eliminating the payroll tax.

Posted by Sensei | Report as abusive

Felix “thinks” that the low level of small business lending is much more supply- than demand-constrained. More like he wants it to be true. That much was clear from the tepid tone of his last two sentences.

The National Federation of Independent Business thinks differently.

Posted by Mega | Report as abusive

Mega, do you have a link?

Here’s an article that references the NFIB:  /120_2/holding-pattern-for-borrowers-10 06105-1.html

They’ve had lending-related press releases at their website, but I couldn’t find them the last time I checked. They may not be archived.

Dunkelberg was interviewed by Tom Keene at Bloomberg a few months back. He’s the chairman of a young bank, so he has some personal experience here.

I’m not saying the situation is all the other way. It’s a bit murky, and small business seems to be in limbo right now.

Posted by Mega | Report as abusive