The fourth quarter Phoenix Management “Lending Climate in America” survey results reveal that inflation continues to plague the economy and is expected to do so well into 2023..

Phoenix’s Q4 2022 “Lending Climate in America” survey asked lenders how the average consumer will approach their holiday spending. The majority of lenders, sixty percent, believe an increase in prices will result in less holiday spending, but will not result in a material decrease from prior years. The other forty percent of the lenders surveyed believe that consumers will reduce their Q4’22 spending, which will have the greatest effect on small business relying on holiday revenue.

Due to inflation, small businesses (on average) have had to raise prices by more than 9% to offset increasing costs. When asked how small business will trend for the remainder of FY2022 and the beginning of FY2023, eighty percent of lenders expect inflation to continue to impact the economy well into FY2023, which will cause already tight margins to be squeezed even more if prices are not raised to offset any increased costs. Twenty percent of lenders believe inflation is at its peak and the economy will begin to normalize, giving relief to the increased commodity prices and material costs.

Additionally, Phoenix’s “Lending Climate in America” survey asked lenders to identify how their borrowers are allocating any excess cash. Of the lenders surveyed, sixty percent expect any excess to go towards building a cash reserve to defend against any further downturn. However, forty percent of lenders believe their borrowers will use excess cash to catch up on payments to any of their stretched vendors.

Lender optimism in the U.S. economy in the near term increased slightly this quarter from 1.58 in Q3 2022 to 1.60 in Q4 2022. The majority of lenders (60%) believe the economy will perform at a “C” level during the next six months. Additionally, lender expectations for the U.S. economy’s performance in the longer term decreased to 1.80 versus the prior quarter of 1.92. Of the lenders surveyed, 80% believe the U.S. economy will perform at a “C” level during the next twelve months.  

“Lenders’ near term optimism in the U.S. economy increased slightly in Q4, despite the ongoing headwinds of inflation and continued interest rate increases” says Michael Jacoby, Senior Managing Director and Shareholder of Phoenix. “Lenders are pessimistic regarding the longer term, and appear to be battening down the hatches for a rocky road in 2023 based on their expectation to tighten loan structures, increase interest rate spread, and a dramatic slowdown of growth by their customers as well as their expectation for increased volatility from the retail, construction and real estate industries.”

To see the full results of Phoenix’s “Lending Climate in America” Survey, click here.