The Credit Market and the Small Business Sector

The NFIB has a barometer that measures a small business’s perspective on credit conditions. The Credit Conditions Availability of Loans Index is a measure of the net percent (“easier” minus “harder”) responses regarding the credit environment compared to three months ago. Deeply negative readings (-16, -14, -12) suggest difficulty borrowing, while less negative values (-5, -6, -7) imply an easier ability to get financing. This closely parallels the trends in the Federal Reserve’s Net Percent of Domestic Respondents Reporting Stronger Demand for Commercial and Industrial Loans from Small Firms (Exhibit 6.7).

These are excellent gauges regarding the desire for firms to borrow and banks’ willingness to lend to the critical small business sector.

The general price level in the U.S. economy is closely correlated with the NFIB’s Higher Price Index. Households and businesses (small and large) alike, possess a great ability to project the underlying rate of inflation. Since consumers are always and everywhere familiar with expenditures, the appreciation for costs is an everyday and often immediate occurrence.

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