Insights from the Lending Climate in America Survey by J.S. Held in Q4 2024

As J.S. Held celebrates 50 years of impactful consulting, their subsidiary, Phoenix Management, has unveiled the results of the "Lending Climate in America" survey for the fourth quarter of 2024. This latest report provides a comprehensive overview of lender sentiment, highlighting expectations and concerns related to the U.S. economy post-presidential election.

Key Findings

The survey results are particularly noteworthy given the backdrop of rising lender optimism following the recent U.S. presidential elections. A notable 62% of lenders believe the 2024 election outcomes will significantly influence the economy in the near future. Coupled with this, 41% cited potential interest rate changes as another significant factor. This indicates that lenders are closely monitoring political and economic developments that could affect market conditions and liquidity.

In terms of expected actions from customers over the next six to twelve months, nearly two-thirds anticipate that their clients will seek additional capital, motivated by expected decreases in interest rates. Market expansion is also on the minds of many, with approximately 50% of lenders indicating that their customers may look to enter new markets.

Industry Volatility

The survey further delves into industry-specific concerns, identifying which sectors are likely to face volatility in the coming months. A striking 63% of lenders highlighted the retail trade industry as particularly vulnerable, while 49% and 42% pointed to real estate and consumer products sectors, respectively. This insight into sectoral challenges underscores the need for businesses to navigate carefully amidst changing economic landscapes.

Loan Structure Adjustments

In terms of operational flexibility, the survey explored potential adjustments to loan structures across various loan sizes. The findings revealed that overall lenders remain consistent in their approach compared to the previous quarter, with a slight inclination towards easing constraints on smaller loans. This suggests that lenders are willing to adapt their servicing strategies to foster business growth amid changing economic conditions.

Economic Confidence

The optimism surrounding the short-term outlook for the U.S. economy is evident, as lender confidence saw a marked increase from a GPA score of 1.76 in the previous quarter to 2.40 in Q4 2024. Notably, this assessment included equal expectations of performance at B and C levels, with a discernible drop in negative assessments within the D level. Looking further ahead, 53% of respondents forecast an economic performance rating of B for the U.S. economy within the next twelve months, maintaining the same level as the prior quarter but indicating a trend away from pessimism.

Interest Rate Dynamics

On December 18, 2024, the Federal Reserve enacted a 0.25% reduction in interest rates, a factor that certainly has influenced lender sentiment. Michael Jacoby, Senior Managing Director at Phoenix Management, expressed that lenders appear to be grappling with mixed signals. While there is overwhelming agreement on further interest rate cuts, concerns persist regarding economic volatility, particularly if anticipated reductions do not materialize as expected.

Jacoby noted, "We believe lenders are concerned about the potential impact if interest rates do not decline at this anticipated pace, which is more of a possibility today than when this survey was completed pre-election."

The survey’s findings provide a window into the collective mindset of lenders as they position themselves for the months ahead. As economic conditions continue to evolve, understanding these trends will be integral for stakeholders across various industries. The question remains whether more significant interest rate reductions will occur when the Federal Reserve convenes next in Q1 2025.

For further details, including the full survey results, please visit Phoenix Management's website.