US small businesses cut borrowing for a second straight month in November, a fresh sign that economic growth may weaken in the coming months as the Federal Reserve gauges the effect of its first interest-rate hike in nearly a decade. The Thomson Reuters/PayNet Small Business Lending Index dropped in November to 127.4 from a downwardly revised reading of 129.9 reading in October. It was the lowest level since February.
"Small business has suddenly decided to hold off on investment to produce more goods and services," said Bill Phelan, President of PayNet. Business owners may be waiting to see how the Fed's widely anticipated rate increase, the economic slowdown overseas, and this year's US presidential race play out before undertaking many new investments, he said.
Still, the lending index was up from a year earlier, suggesting businesses may contribute some amount of growth to the economy, he said. The index, which hit a record in June, has historically tracked ahead of US gross domestic product growth by two to five months. The US economy grew at a 2.1 percent annual pace last quarter, a pace that's expected to cool to 0.7 percent this quarter, according to the latest modelling by the Atlanta Fed.
The Federal Reserve last month raised the range of its benchmark interest rate by a quarter of a percentage point to between 0.25 percent and 0.50 percent from near zero, where it had kept short-term borrowing costs since December 2008. Central banks typically use rate hikes to slow growth and keep inflation in check. The delinquency rate on loans more than 30 days past due ticked up to 1.46 percent in November, separate data from PayNet showed.
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