Top Trends: The History of the Phoenix Lending Climate Survey

August 24, 2021  |  By Michael Jacoby  |  4 Minute Read

Over the past 25 years, the world has significantly changed—especially the economy and lending climate. It’s important to note these changes and identify and analyze trends in order to determine risk and potential financial outcomes of business decisions.

Phoenix Management gauges major shifts in economic viewpoints with a proprietary quarterly survey of senior banking professionals. We survey savvy leaders in the industry to determine trends, gain valuable feedback, and make predictions for the future. Let’s take a look back at the past 25 years of our ‘Lending Climate in America’ Survey and explore its history and reveal its top trends.

The Phoenix Management Lending Climate in America Survey

The Lending Climate in America Survey is administered quarterly to lenders from various commercial banks, finance companies, debt funds and factors across the country. It identifies the latest economic issues, business drivers, and credit trends impacting lending in America.

Phoenix collects, tabulates, and analyzes the results to create a complete evaluation of national attitudes and trends. This robust report typically details topics like near-term and long-term economic performance expectations, the biggest economy-affecting factors, industry volatility, customer plans, customer growth expectation, and current events-related issues like COVID-19 recovery and presidential elections. Phoenix Management also publishes an engaging infographic for each survey that breaks out some of the top trends from that particular quarter.

The Biggest Factors and Trends Over the Last Five Years

From 2016-2021 there have been many changes that have caused significant shifts in the economy and businesses’ response to it. The following are some of the biggest factors that affected the entire U.S. economic, social, and political climate over the past five years.

  • 2016 Presidential Election

    The 2016 presidential election results created a positive economic outlook —and lender optimism on the U.S. economy for the short term increased to a “B” grade in Q1 2017, and remained at a B level through late 2019. This stable period and outlook, however, greatly changed in 2020 with the COVID-19 pandemic.
  • COVID-19 Pandemic

    While the drastic impact of the COVID-19 pandemic was unanticipated, lenders had a keen sense of the turmoil approaching. In the Q1 2020 survey (results were submitted prior to Feb. 25, 2020), lenders predicted that COVID-19 would have a significant impact. As the novel coronavirus continued to spread across the U.S. and around the world, the majority of lenders said they believed that the coronavirus and other factors would be the leading economic driver of the first half of 2020. U.S.-China trade negotiations ranked as second highest.
  • Economic Recession from Pandemic

    The economic recession due to the pandemic happened swiftly. In Q2 2020, lenders noted that the COVID-19 crisis had devastating consequences for the U.S. economy, unemployment rate, and business performance. At the time, lenders forecasted that in the near-term, economic outlook would remain bleak, but in the long term, performance would begin to improve marginally. This has proven true, as 2020 moved into 2021.
  • 2020 Presidential Election

    The long-term impact from the 2020 election on the U.S. economy isn’t yet know, but when asked which issue lenders believed was most important to the 2020 election at the time, nearly all lenders—92%—indicated that either COVID-19 or fiscal policy would be the driving factor. Positivity around this election was significantly lower than it was in 2016, due to the economy and COVID-19.
  • Post-COVID-19-Recovery

    In early 2021, as vaccines became available and businesses reopened, post-COVID-19 recovery began with a more positive overall outlook on the economy. Optimism in the U.S. economy continued to improve through Q2 2021, with results for the near-term economy exceeding pre-pandemic predictions for the first time since the country’s COVID-19 shutdown.

Key Survey Topics and Takeaways in the Past Five Years

The survey frequently covers important and relevant topics for lenders. The following are some of the regular areas explored, and how lenders’ responses have changed over the past five years.

  • Predictions of GDP Growth

    Phoenix frequently asks lenders what their predictions are for GDP growth. In early 2017, the review and renegotiation of the United States international trade treaties caused lenders to believe that it would result in new job creation and GDP growth.

    In Q1 2020, lenders believed that the GDP would grow at the same annualized rate of 2.1% in 2020 as it did throughout 2019—however COVID-19 happened and the GDP dropped significantly instead. But in early 2021 the majority of lenders (58%) expected a 4-5% GDP growth for 2021 as vaccines were rolled out and COVID-19 case numbers decreased.
  • U.S. Economic Performance Grade

    Lenders are usually asked to grade the current U.S. economic performance from “A” to “F.” From late 2016 through late 2019, the economy was generally predicted to perform at a “B” level. In Q2 2020, this dropped significantly, to a “C” level overall, with some lenders rating it a “D” or “F.”

    The Q3 2020 survey continued a trend of a higher rated long-term GPA rather than near-term GPA. Although lenders were still quite pessimistic about the U.S. economy due to COVID-19, they were becoming slightly more optimistic about the prospect for the U.S. economy to recover in the long-term. By 2021, near-term and long-term economic performance expectations both increased back up to a “B” level.
  • Customers’ Plans in the Next 6-12 Months

    Phoenix often asks lenders what their customers’ plans are for the next six to 12 months. In 2016, only half of lenders said their customers planned to take actions like capital improvements. But by Q3 2018, the vast majority’s (84% and 76%) plans included capital improvements, as well as hiring new employees.

    By Q2 2020, the percentage of customers planning capital improvements dropped to 69% but it was still the initiative with the highest response, while hiring new employees dropped out of the top actions they planned to take, most likely a result of the exceedingly tight labor market.
  • Risks to Lenders

    Lenders are typically asked what their biggest risks are. In 2016, 43% of lenders believed that increased regulations and the cost of compliance were the most significant financial challenges that banks and lending institutions were facing.

    In Q4 2020, 59% of lenders expected that reduced new business opportunities due to the economy and competition would pose the greatest risk to their institution in the next six months. Meanwhile, nearly one quarter of respondents (23%) indicated that deterioration of their current portfolio was their biggest risk.
  • Impacts of COVID (Late 2019-Present 2021)

    One important topic that appeared in late 2019 and has been present throughout every survey since then is COVID-19. In early 2019, 56% of lenders believed that shaky outlooks abroad and domestically were concerning, and they thought 2019 would be a year of “economic volatility and uncertainty.” This was pre-COVID, but on point for the immediate future.

    In Q2 2020, lenders said the COVID-19 crisis continued to impact business performance, and the majority of lenders believed that less than half of all borrowers that received Federal Stimulus funds would return to or exceed pre-crisis operation by Q1 2021. In mid-2021, the economy continues to recover.

Change is Constant—But Phoenix Can Help

The past five years have been eventful, and have demonstrated that keeping an eye on the economy and lending climate is crucial. Phoenix Management continues to survey lenders to help lenders, investors, and companies better understand the current state of the economic climate and anticipate trends that could affect their operations. Phoenix Management is here for businesses in times of change, and we are able to provide the experience and insight to help navigate challenges. Contact us to learn more about our service.

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