Business and Credit Climate
Trends and Indicators from the perspective of SEWN Consulting
The Strategic Early Warning Network (SEWN) provides credible services for Pennsylvania businesses with a focus on early intervention for building sustainable companies in order to avoid layoffs and business failures. As hands-on service providers, we interface with company leadership and employees at a ground level to understand the business environment and daily challenges they encounter.
Given our professional experience, we also look at the broader market data indicators to anticipate what may lie ahead for our discussions with company owners to consider in their strategic plans.
The manufacturing sector is a concentrated area of expertise for SEWN and forward-looking data is readily available in a variety of forms to perhaps add clarity for that crystal ball vision. While small and mid- sized manufacturers have internal metrics to gauge their historical sales trends, a source such as the US Census Bureau provides insight on a broader level of manufacturing sales trends. The sample below provides data trends on monthly new orders of durable goods defined as: a communication of an intention to buy for immediate or future delivery. At year-end 2022, the monthly new orders anticipated were $282 Million and at year-end 2023 the monthly new order outlook was at $296 Million or an increase of 4.8% for respective January new orders. As the graph depicts, the anticipated new orders can vary significantly across periods but rolling data is released weekly providing perspective on sales order trends.
Another resource for manufacturers on directional insight into economic industry trends is the Institute for Supply Management’s (ISM™) reporting on US Manufacturing Purchasing Managers’ Index (PMI™) statistical trends. This readily accessible data provides rolling monthly details on the manufacturing sector growth or contraction expectations per survey input from supply executives. The January 2024 report shows a continuing expectation of contraction in the manufacturing sector as it has over the prior 14 months.
Too often, in a financially distressed business conversation, the owner is communicating to us that they are going to solve their tight cash-flow issue through significant and immediate sales growth. When working on business forecasting with a small to mid-sized manufacturer and they indicate a significant growth rate from existing products and customers in their models, these data indicators and associated drill-down levels of information provide a basis for discussion and perhaps a reality check.
For an expanded outlook to four quarters, not just applicable for manufacturing, but covering a composite of firms in a range of sizes, the Federal Reserve Bank of Atlanta website provides various statistics such as expected sales growth rates along with the level of uncertainty expressed by survey participants.
In SEWN consulting situations, we get to the hear the perspective of the PA business executives who are managing in an uncertain environment; and we can offer that they are not alone – as their peers indicate – that since COVID, there is a greater expression of uncertainty in future sales levels. But if the 12-month horizon is indicating a slowing growth rate then perhaps we should plan accordingly for required capacity and resources.
SEWN, as service providers in distressed business situations, can anticipate that slowing revenue growth will negatively impact business cash flow and perhaps employment levels. Our goal is to reach those businesses with early intervention resources and avoid contributing to the statistics surrounding increased business failures.
A pre-cursor to bankruptcy is a business unable to make their loan payments. In turnaround consulting, we can expect as Banks report increases in business loan payment delinquencies that those companies are likely in need of the resources we can provide, so we monitor Banks commercial loan delinquency reporting statistics through the Federal Reserve.
The Federal Reserve also surveys Bank Senior Loan Officers for their opinions on bank lending practices. This composite data and trend line provides insight as to how those in commercial lending report changes in the loan standards and terms over the past quarter. In the January 2024 survey, the overall results indicate tighter credit standards during the 4th quarter for issuing commercial and industrial loans. Banks would typically tighten their credit standards in anticipation of less favorable business conditions or uncertainty in the economic outlook. Tightening standards can include increasing interest rates charged for greater perceived risk or requiring enhanced collateral positions. For companies looking to borrow funds this lending trend implies a less favorable credit market to obtain necessary capital, or in the case of a turnaround or refinancing scenario this can be a detriment to obtaining needed funds.
There is a volume of daily information published and communicated regarding economic forecasts and financial markets. And for the business managers involved in so many day-to-day operating aspects it is difficult to absorb all the content and readily apply it to their circumstances. As a financial consultant for SEWN part of our professional expertise includes tapping into the wealth of helpful metrics and resources that can be utilized to support the middle market businesses in PA.
