South By North Strategies, Ltd.

How Discouraged Are Small Businesses?

A recent survey by the Federal Reserve of Atlanta attempted to gauge whether declines in small business lending are due to reductions in supply or due to reductions in credit-worthy demand. From the bank’s blog …

Indeed, the results of our April 2010 survey suggest that demand-side factors may be the driving force behind lower levels of small business credit. To be sure, when asked about the recent obstacles to accessing credit, some firms (34 firms, or 11 percent of our sample) cited banks’ unwillingness to lend, but many more firms cited factors that may reflect low credit quality on the part of prospective borrowers. For example, 32 percent of firms cited a decline in sales over the past two years as an obstacle, 19 percent cited a high level of outstanding business or personal debt, 10 percent cited a less than stellar credit score, and 112 firms (32 percent) report no recent obstacles to credit. Perhaps not surprisingly, outside of the troubled construction and real estate industries, close to half the firms polled (46 percent) do not believe there are any obstacles while only 9 percent report unwillingness on the part of banks.

Editor’s Note

Policy Points is taking Memorial Day off. Normal posting will resume on Tuesday, June 1.

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Around The Dial – May 28

Economic policy reports, blog postings, and media stories of interest:

• The Research Triangle Regional Partnership reports on the state of the region.
• The N.C. Budget & Tax Center analyzes the Senate budget.
• TaxVox asks if the home mortgage interest deduction should be dumped.
• EPI compares median unemployment durations by state.

April Local Employment Report

Local labor market conditions across North Carolina remained weak in April, according to preliminary data released today by the Employment Security Commission. In April, 63 counties posted double-digit unemployment rates, and 23 counties recorded unemployment rates of at least 12 percent.

Every part of the state experienced weak labor markets in April. Unemployment rates exceeded 10 percent in 63 counties, and in 23 counties, at least 12 percent of the labor force was jobless and actively seeking work. County unemployment rates ranged from 5.8 percent in Currituck County to 15.8 percent in Scotland County.

Last month, unemployment rates fell in all 14 of the state’s metropolitan areas, and every metro but Rocky Mount netted jobs. Nevertheless, five metros posted double-digit unemployment rates. The Hickory-Morganton-Lenoir area had the highest unemployment rate (13.3 percent) followed by Rocky Mount (13 percent). The lowest metro unemployment rate was 7.2 percent in Durham-Chapel Hill.

Click here to read South by North Strategies’ full analysis of the April report.

Unemployment Insurance Solvency

The U.S. Department of Labor estimates that outstanding loans to state unemployment insurance system will reach $90 billion by fiscal year 2013. The unprecedented demand for unemployment insurance partly is a consequence of the severe recession, but it also is the result of poor financing decisions made by many states during the 1990s.

In a recent paper, the National Employment Law Project analyzed the health of state unemployment insurance systems and offered the following state-level recommendations for restoring fund solvency:

State policy makers should resist reverting to the “equality of sacrifice” model in which roughly equivalent benefit cuts and tax increases are used to restore solvency. Overly generous benefits did not cause today’s crisis, and taking money out of the hands of jobless workers in today’s slowly recovering economy would do more harm than good.
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Employers in states that have adopted a “pay-as-you-go” approach to UI financing are now facing major costs that are a direct consequence of this philosophy. As they move out of the current solvency crisis, these states need to turn the corner and adopt forward-financing principles.

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