Emerging Growth

The United States continues to climb out of the Great Recession. While the National Bureau of Economic Research said the 18-month downturn officially ended in June 2009, Americans have continued to feel its sting nearly six years since it began in December 2007.

However, traditional economic indicators are showing signs of improvement. The national unemployment rate dropped 1.5 points in the last year to 7.3 percent in August, according to the U.S. Bureau of Labor Statistics. Locally, that number is even lower. The Springfield metropolitan statistical area – comprising Christian, Dade, Greene, Polk and Webster counties – registered a 6.2 percent unemployment rate in July.

The September Commentary on Current Economic Conditions by U.S. Federal Reserve – commonly known as the Beige Book – suggests national economic activity continued to expand at a modest to moderate pace during the reporting period of early July through late August.

“Two-thirds of  retail contacts noted increases in sales during the past three months, while 17 percent noted moderate decreases and the rest saw no changes,” the report reads.

Eight districts – including Missouri’s 10th District based in Kansas City, and the Eighth District, out of St. Louis, which comprises most of southwest Missouri – reported planned activity in the manufacturing sector, increased consumer spending and little change in lending activity during the second quarter of 2013.

However, Metropolitan National Bank President and CEO Mark McFatridge said the banking industry is climbing.

“For a while, there were not a lot of new projects out there,” he said. “Banks were playing a shuffle game trying to get renewal business and keep the doors open.

“It’s the borrower who wins in that situation. Not only were interest rates at historic lows, but banks were fighting for their business.”

According to the Federal Deposit Insurance Corp., as of June 30, net loans and leases at Metropolitan National Bank are up slightly to $287.65 million, compared to $284.76 million at the same time last year.

Missouri’s net loan assets decreased to 61.13 median percent in the first quarter, compared to 62.16 in the same quarter of 2012.

“Banks are headed in the right direction again,” McFatridge said. “There has been a step back in standards, and that’s a good thing. Banks are back to where they should have been all along.”

Commercial banks and savings institutions insured by the FDIC reported aggregate net income of $42.2 billion in the second quarter of 2013, a 22 percent increase from $34.4 billion in profits the industry reported last year, according to a news release.

Interest rates
Continued low interest rates, combined with a lack of organic deals, has led to a highly competitive lending environment with banks fighting for real estate loans and customer renewals, McFatridge said.

“The banking industry has definitely bounced back from the lows of 2007 and ’08,” he said. “Credit quality has improved across the industry. After the downturn, I think banks have been forced to become more efficient.”

A recent rise in interest rates is expected to impact mortgage volumes through the second half of 2013, according to Irvine, Calif.-based real estate data tracking firm CoreLogic (NYSE: CLGX). Between May and August, the 30-year fixed rate mortgage rose by a little more than 100 basis points to 4.39 percent, the largest rise in the long-term rate since mid-2004, according to the report.

On the flip side, McFatridge said the net interest margins for banks decreased, leaving little room for error. According to the FDIC, Missouri is down to 3.64 percent in the first quarter, compared to 3.86 in 2012.

“The margin was so small, a lot of banks can’t take a chance on a deal,” he said. “In order for lending to open up, we need to be in a rising rate environment.”

Serving a 28-county area, the Springfield branch of the U.S. Small Business Administration closed on 165 loans through the third quarter of fiscal 2013. Springfield Branch Manager Suzanne Stearman said the office has facilitated $53.5 million in loans through the quarter’s close in March. “August was higher than the previous 10 months, so we are hoping to finish the year strong,” she said, noting SBA’s fiscal year ends Sept. 30.

The Springfield SBA office ended fiscal 2012 with $151 million in loans, behind a record $162.6 million in fiscal 2011.

“2011 was an odd year because federal recovery money was in the mix,” she said, adding the office continues to see a majority of refinance loans as small-business owners take advantage of interest rates.

Going forward in 2014, she said small federal rule changes could have a large impact on loan volumes, including a waiver of the agency’s fees for guaranteeing loans of less than $150,000.

“The SBA noticed a trend toward larger loans, and we wanted to encourage the use of small loans, as well,” she said.

According to the SBA, guaranteed general business loans for $150,000 or less have fallen to $1.4 billion in 2009 from $3.5 billion in 2007.

Unpredictables
Financial market stresses remain lower than average, according to the St. Louis Fed Financial Stress Index, but still rose for the third consecutive week. For the week ending Aug. 30, the STLFSI measured -0.418, a slight increase compared to the previous week’s reading of -0.428.

According to the St. Louis Federal Reserve, the Financial Stress Index measures the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. The average value of the index, which begins in late 1993, is designed to be zero to represent normal financial market conditions. Values below zero suggest below-average financial market stress, while values above zero suggest above-average financial market stress.

Financial market stresses are modestly less than a year ago, when the index measured -0.362 for the week ending Aug. 31, 2012.

The departure of Fed Chairman Ben Bernanke when his second term ends in January could cause uncertainty in the market. However, Fed officials say they won’t stop buying long-term bonds until the national unemployment rate hits 7 percent. The Fed also has vowed to keep short-term interest rates low, at least until the jobless rate hits 6.5 percent or inflation rises above 2.5 percent.

“The uncertainty all depends on who replaces Bernanke,” McFatridge said. “It’s an unknown factor until it happens. It’s all wait and see.”