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December 16, 2003

Economy Poised for Notable Recovery, Including Rebound in Jobs

PHILADELPHIA (December 16, 2003)—Commercial lenders across the nation believe the economy is poised to turn in its best performance in years, predicting that domestic loan demand will jump markedly in the next six months and that the job market will have rebounded by this time next year, according to the results of the latest Phoenix Management “Lending Climate in America” survey.

Sixty-one percent of the 120 lenders who participated in this quarter’s survey said demand for corporate lending would be up, compared to 39 percent who said the same last quarter. Lenders were even more optimistic about loan demand by middle market and small businesses: 78 percent, each, said middle market and small business lending would rise in the next six months.

This marks the first time in several years that lenders believe a job market recovery is in sight. Forty-nine percent of respondents said they expected the U.S. job market to rebound during the first half of 2004, while 37 percent said they expected that recovery to take effect during the second half of the year. Only 14 percent believe it will take until 2005 or later for the job market to recover.

“The job market is the final puzzle piece we have been waiting to slide into place,” said E. Talbot (Tal) Briddell, president of Phoenix Management Services, which conducts the quarterly survey. “This is the first sign of guarded optimism that we have seen from lenders in several quarters. Just three months ago, many lenders were still forecasting further job cuts. They finally believe this recovery is taking hold and that it will trickle down to the stubbornly resistant job market in the next six to 12 months.”

More than half of lenders said they believed the outsourcing of American jobs to foreign countries posed a threat to the long-term health of the U.S. economy. But when pressed further, 61 percent said outsourcing was ultimately a positive because it forced businesses to become more innovative, competitive and productive. Thirty-six percent said outsourcing was a negative because it results in domestic job loss.

“We uncovered an interesting dichotomy in attitudes toward job outsourcing,” Briddell said. “At first blush, most lenders think outsourcing will hurt the U.S. economy over time. But the flip side of their thinking is that outsourcing can be a powerful impetus for American businesses to innovate and produce more efficiently.”

In another notable sign of increased optimism, 57 percent of lenders said the unemployment rate would drop in the next six months. Lenders also reported higher confidence levels in their customers” growth expectations. This quarter, 17 percent said their customers expected strong growth in the next six to 12 months, up from only three percent who said the same last quarter. A majority of lenders ” 78 percent ” said their customers anticipated moderate growth. Only five percent said their customers expected no growth, a significant improvement over the 17 percent who predicted no growth last quarter.

“This is a good sign,” Briddell noted. “When lenders believe their customers are expecting strong growth, that says lenders are feeling a new level of confidence in the economy.”

When asked which industries were most attractive to their lending institution, lenders named three that have topped the list for six consecutive quarters ” Light Manufacturing (84 percent), Industrial Distribution (72 percent) and Service Companies (59 percent).

Start-ups / New Ventures were named an unattractive industry by 61 percent of lenders, but that was the only industry that received a negative rating by more than half of respondents.

In another sign of an improving economy, Technology experienced a significant drop in unattractiveness, cited as an unattractive industry by only 29 percent of lenders, compared to 50 percent last quarter. It also rose slightly in attractiveness to lenders, from 10 percent last quarter to 16 percent this quarter.

Lenders also expect the Fed to begin raising rates. Sixty-one percent predicted a rate hike of half- to three-quarters of a point in the next six months.

About the Survey

The Phoenix Management  ”Lending Climate in America” Survey is conducted quarterly to gauge shifts in lenders” attitudes toward the economy. Lenders from commercial banks, commercial finance companies and factors across the country are surveyed each quarter.

Phoenix Management Services is a national turnaround management firm based in Philadelphia that assists companies encountering financial, operational or management difficulties.

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