The latest Quarterly Credit Outlook from PayNet shows Main Street closing Q2 2018 with modest growth and strong financials. The Thomson Reuters / PayNet Small Business Lending Index (SBLI) seasonally adjusted originations decreased 8 percent from 155.6 in May 2018 to 142.6 in June 2018, and the three-month rolling average edged down. However, compared to the same month one year ago, the index is up 2 percent, marking the ninth consecutive monthly increase on a year-over-year basis. Similarly, the three-month moving average is up nearly 10 percent compared to a year ago.

“While a modest year-over-year increase is perhaps less exciting than the double-digit growth we saw earlier this year, it is a sign that business owners are avoiding irrational exuberance and embracing a more sustainable growth trajectory,” said PayNet President William Phelan. “At the same time, financial health remains at near pristine levels, indicating strong financial capacity for future growth. Modest growth and strong financials suggest that the current expansion remains on solid footing.”

The expansion phase looks intact in Q2 2018, and the SBLI remains above 140 for the second consecutive quarter. Compared with June last year, most industries showed solid investment support, led by Transportation and Warehousing (+17 percent), Mining (+13 percent) and Agriculture (+7 percent). Only three industry sectors showed year-over-year weakness, including Accommodation and Food Services (-10 percent), Information Services (-7 percent) and Professional Services (-2 percent).

Geographically, expansion is becoming more broad-based as each of the 10 largest states experienced growth over the prior year, led by Texas (13 percent), North Carolina (12 percent) and Illinois (9 percent).

The Thomson Reuters/PayNet Small Business Delinquency Index (SBDI) showing loans 31-90 days past due held steady at 1.41 percent from May to June 2018. Year-over-year, the delinquency rate increased by nine basis points, and most large industries saw delinquencies rise. One major exception was Transportation (-56 basis points Y/Y), where year-over-year delinquencies have fallen by double-digits for 10 consecutive months. Delinquencies rose in six of the ten largest states compared with June 2017, led by Georgia (+26 basis points Y/Y). However, delinquency levels remain at least 145 basis points below their historic peaks across all ten largest states.

Compared with May 2018, the Thomson Reuters/PayNet Small Business Default Index (SBDFI) fell three basis points to 1.81 percent in June, its lowest level since September 2016. The SBDFI fell six basis points compared to a year ago, its sixth straight annual decline. Compared to a year ago, defaults rose in a third of the major industries, led by Information Services (+90 basis points Y/Y). Notably, Mining (-158 basis points Y/Y) and Transportation & Warehousing (-142 basis points Y/Y) posted triple-digit declines, while Agriculture defaults also fell (-9 basis points Y/Y). On an annual basis, four of the ten largest states experienced an increase in defaults in June, led by Georgia (+23 basis points Y/Y) and North Carolina (+18 basis points Y/Y). During that same timeframe, Texas (-34 basis points Y/Y) and New York (-15 basis points Y/Y) saw defaults decline.

“Main Street has undertaken a clear mindset shift in the last year, resulting in record levels of investment and an increased willingness to take risks,” Phelan said. “While the run of double-digit gains in lending activity appears to have subsided, the fact that most industry groups continue to expand is indicative of a broad-based strengthening of the Main Street economy. With credit risk remaining subdued by historical standards, we expect Main Street businesses to continue serving as the engine for economic growth in the months ahead.”