COVID-19 will continue to have a major effect on U.S. performance throughout 2020, according to the results of Phoenix Management’s Q3/20 Lending Climate in America survey.
While lenders seem to believe COVID-19 will have a major effect on the U.S. performance until a vaccine is widely available, the outlook for the U.S. economy in the near and long-term is more favorable in Q3/20 than in the previous quarter predictions. The near-term grade point average increased 54 percentage points to 1.72 from the Q2/20 GPA of 1.18. The projected outlook for the U.S. economy in the long term increased slightly (by 36 percentage points) to 2.6 from the previous quarter’s results of 2.24.
Millions of workers were furloughed between March and June of 2020, and 22% were permanently laid off. When respondents were asked, prior to the widespread availability of a vaccine, do you believe we will see companies continue to operate at post-COVID-19 or pre-COVID-19 headcounts, 64% of lenders said companies will continue to operate at post-COVID-19 headcount levels until a vaccine is widely available. Thirty-six percent of lenders said companies will continue migrating towards pre-COVID-19 headcount levels.
The survey also asked lenders how they expect their loan portfolio to perform in Q4 versus Q3, assuming the status quo regarding the COVID-19 pandemic (i.e. no major increases in cases or death from Q3 and no vaccine) from a risk rating perspective. The survey found that 44% of lenders expect their loan portfolios to remain stable, 32% expect their loan portfolios to decline and 24% expect their loan portfolios to improve from a risk rating perspective.
Lenders also were surveyed to identify what they believe will be the driving factor for the U.S. presidential election results. The survey found that 48% believe the coronavirus will be the most important 2020 election issue. Meanwhile, 44% of lenders believe fiscal policy will be the most important issue in the 2020 presidential election, while 4% believe a) economic inequality and b) supreme court appointments will be the driving factors for the election results.
“In Q3/20, 64% of the respondents believe companies will continue to operate at post-COVID headcount levels until a vaccine is widely available. There was a significant drop in the diffusion index for unemployment (-36%) this quarter from Q2/20’s results of 26%. For many Americans furloughed and laid off, a vaccine cannot come soon enough,” Michael Jacoby, senior managing director and shareholder of Phoenix Management, said. “It is not surprising that the coronavirus will be the largest factor in the U.S. economic performance moving forward as well as the U.S. presidential election in November.”
