Fads come and go.  Trends remain until they don’t.   It is amazing how quickly we forget them once they are gone.  Funny thing is, they tend to re-emerge without us even noticing.   I think we are in the midst of this very circumstance in community banking today.  I think it has been so long since we have had “pricing power” on our loans, we may have failed to notice a new trend emerging.
 
The National Federation of Independent Business (NFIB) claims to be America’s leading small business association, with upwards of 325,000 business owners.  I don’t doubt that claim.  To me, this is a huge resource pool for gathering information about the reality of life for America’s small businesses.  Better yet, the NFIB seems to agree with me.  Each month, they release a detailed survey to their members on everything from earnings and hiring, to regulatory headwinds and banking.   That’s right, banking!  The NFIB takes the survey results and creates its Small Business Optimism Index.  There are many useful data nuggets in this survey, but the one I wanted to highlight to you today is contained in the “Small Business Credit Conditions” section of the survey results; “RELATIVE INTEREST RATE PAID BY REGULAR BORROWERS."  It looks at the net percent, compared to three months ago, of respondants paying higher interest rates on new borrowings.  In the chart below, you can clearly see the re-emergence of a long forgotten friend of ours, loan-pricing power.



 
This index now stands at the highest level seen in 11 years.  It indicates that regular borrowers are paying higher interest rates on new borrowing.  In general, bankers I have talked with recently are still saying that the lending environment is still too competitive, and if you want new deals, you have to offer the lowest yield.  The trend in the chart above clearly shows SOMEONE is raising loan yields, and businesses seem happy to borrow at those higher rates.  I hope this re-emerging trend doesn’t pass you by.

It is that time of year again and I must admit, I find myself in a bit of a panic!  But as always, I am excited to see all of you.  The ALMEdge conference is scheduled for Friday, April 6th and you can find all the details HERE as well as the opportunity to register for the event.

With the tax package in the midst of passage, something very encouraging is taking place that bears discussion.  In the December ALCOTalk newsletter, I finished up the newsletter with the phrase, “let the good times roll,” because if what I am about to show you bears fruit, 2018 is set to be a pretty good year for not only the US economy, but bankers as well. 
 
The chart below is a modified version of a chart put out by Bank of America Meryl Lynch (BofAML).  The model utilizes survey data that covers the most important sectors of the economy as it relates to GDP growth.  It contains survey data from the Institute for Supply Management (ISM), University of Michigan (consumer confidence), the National Federation of Independent Business (NFIB) and the National Association of Home Builders (NAHB).  The chart shows the combined level of the survey data in terms of standard deviations above or below trend and GDP growth on a year-over-year percentage change.


 
As you can see, this model does a very good job of predicting GDP growth; the benefit of this model is it helps us try to predict the future path of GDP growth.  Each of the data sets are released monthly, while GDP is released quarterly.  The reason I bring this up today is, it’s very clear in the graph that if everyone represented in these recent surveys does what they imply, we are in for a nice boost in GDP growth in 2018.  The bonus for community bankers lies in the graph below.  It shows the same model relative to the growth rate of total loans & leases rather than GDP.  It clearly shows us to get ready for a nice pickup in lending activity.


 
I am crossing my fingers that this will be our reality for 2018.  However, as I layed out in the last newsletter, this has important implications for the glide path of interest rates in 2018. 
 
As a side note, I want to let you all know I/we really appreciate your business realtionships and thank you for a great year. Have a very happy holiday, and I am sure there will be plenty to discuss next year.
 
P.S. for those who are not aware, the ALCOTalk newsletter is a subscription-based newsletter which is published every other month, and has a subscription price of $300/year.  If you are interested in subscribing just let one of us in the ALM department know.