From the second quarter Phoenix Management “Lending Climate in America” Survey, results shows lender confidence on the U.S. economy in the long term continuing to deteriorate.

The Q2 2017 survey continues the recent trend of lenders increasing pessimism about the future with a higher near term GPA than long term. Lenders optimism on how they expect they U.S. economy to perform beyond the next 6 months has fallen 15 points from a GPA of 2.45 in the previous quarter to a 2.30 in Q2 2017. Similarly, their confidence in the U.S. economy during the next 6 months decreased slightly, falling 8 points from 2.58 in Q1 2017 to 2.50, which continues to represents an overall ‘B’ grade.

This quarter’s diffusion index, which measures lenders’ sentiment, displayed sharp increases in lenders’ negative views towards loan losses and bankruptcies. Of the lenders surveyed, 70% expect bankruptcies to be up, a 22 percentage point increase from the previous quarter, and 55% expect loan losses to be up (a 28 percentage point increase from Q1). Furthermore, all lenders surveyed (100%) believe that interest rates will increase, compared to the Q1 2017 results of 93%.

In addition, lenders were also surveyed regarding the economic factors they believe will have the strongest potential to affect the near-term economy. Fifty-five percent of respondents believe the stability of the stock market will have the strongest impact on the economy in the next six months, while thirty-six percent of lenders surveyed believe that unstable energy prices (6 percentage point decrease from Q1) will have the strongest potential to affect the U.S. economy in the near-term.

The sentiments for unstable energy prices is further supported by the fact that many economists expect gas prices to rise dramatically before the end of 2017. We asked lenders to identify which factor they believe is most likely to cause gas prices to rise before the end of 2017. Of the lenders surveyed, 63%, believe that geopolitical uncertainties will be the most likely factor to cause gas prices to increase, while 29% believe gas prices will increase dramatically due to a decline in oil inventories.

“While lenders confidence in the health of the U.S. economy remains relatively stable in the near term, their confidence in the U.S. economy in the longer term continues to weaken. The combination of increased interest rates, combined with expectations for increased loan losses and bankruptcies, it leaves a concerning impression on how the U.S. economy will perform in both the near and long term,” says Michael Jacoby, Senior Managing Director and Shareholder of Phoenix.

 See the full results of Phoenix’s “Lending Climate in America” Survey