The COVID-19 pandemic has created pessimism in the U.S. economy’s near-term performance, according to the second quarter Phoenix Management “Lending Climate in America” survey.
The outlook for the U.S. economy experienced a significant decrease in the near-term. The near-term grade point average (GPA) decreased 139 percentage points to 1.18 from the Q1/20 GPA of 2.57, marking the lowest GPA since Q1/09. These results show lenders have deep concern for the performance of the U.S. economy during the worldwide COVID-19 pandemic. Interestingly, the projected outlook for the U.S. economy in the long-term significantly increased (by 45 percentage points) to a 2.24 from the previous quarter’s results of 1.79.
Lenders were asked to identify how effective they think the fiscal stimulus measures by the federal government to buffer the economic impact brought on by the COVID-19 crisis have been. The majority of lenders (53%) believe the measures have been slightly effective. Thirty-eight percent of lenders believe the measures have been effective, while 7% believe the fiscal measures have been very effective.
The survey also asked lenders whether they expect economic indicators to be up, down or to remain at the same level over the next six months. The question drills down even further into specific economic indicators including bankruptcies, loan losses and unemployment. The survey utilizes the diffusion index to measure lender sentiment. The diffusion index is calculated by subtracting the percentage of negative expectations from the percentage of positive expectations. In Q2/20, Phoenix saw an increase from lenders on bankruptcies, loan losses and unemployment metrics when compared with Q1/20 results. One hundred percent of lenders expect bankruptcies and loan losses to increase and 26% expect an increase in unemployment.
Lenders also were surveyed this quarter on what they think the unemployment rate will be by Dec. 31. Half of lenders think the unemployment rate will be between 10.01-15.0% by Dec. 31. Of the lenders surveyed, 28% think the unemployment rate will be between 5.01-10.0%. Eighteen percent of lenders think the unemployment rate will be between 15.01-20%.
“In Q1/20, 40% of the respondents believed the coronavirus would be the largest driver in economic performance,” Michael Jacoby, senior managing director and shareholder of Phoenix, said. “Not surprisingly, lenders’ are more pessimistic in Q2/20, in part due to the devastating health, societal and economic impact of COVID-19. What is clear, is that we face a multitude of unprecedented challenges during the next several quarters as the U.S. economy battles COVID-19.”
Phoenix Management Services provides turnaround, crisis and interim management, and specialized advisory for both distressed and growth-oriented companies. Phoenix Transaction Advisory Services provides quality of earnings, operational diligence, Quality of Enterprise, business integration, sell-side business preparation and other transaction related support. Phoenix Capital Resources provides investment banking solutions including M&A advisory, complex restructurings and capital placements. Phoenix Capital Resources is a U.S. registered broker-dealer and member of FINRA and SIPC.