Commercial Paper Surge Signals Corporates’ Economic Doubt

Corporate treasurers and chief financial officers are on the defensive, issuing short-term commercial paper at their fastest pace since 2011, according to reports in Bloomberg this week.

In a Bloomberg Opinion piece published Thursday (July 18), editor Robert Burgess pointed to the acceleration of U.S. corporates issuing “short-term corporate IOUs” faster than they have in the last eight years. There was $1.05 trillion in outstanding short-term unsecured promissory notes at the beginning of the year; as of early July, estimates peg the value of commercial notes at $1.16 trillion, according to Federal Reserve data.

Although the value declined slightly in the last two weeks, the figures reveal corporates’ potential concerns over economic outlook as they turn to short-term funding rather than long-term loans or bond issuances.

Data from the Federal Reserve also revealed that corporates have slowed their long-term borrowing, with commercial and industrial loans growing by only 0.15 percent in the year’s second quarter — the smallest increase since the end of 2017, according to reports.

In addition to commercial paper’s surge and the slowdown in commercial lending, the publication pointed to the Institute for Supply Management, whose gauge for orders for factories dropped to its lowest level since late 2015. Further, the Conference Board’s Leading Economic Index, published this week, fell by its largest amount since early-2016, reports said.

“Manufacturing, trade and investment are weak all around the world,” said Federal Reserve Chairman Jerome Powell in remarks made to Congress last week for the Fed’s semi-annual testimony.

Corporate America’s confidence in the national economy is also likely based on factors the Fed can’t control. The U.S.-China trade war and political gridlock in D.C. are two key factors putting pressure on corporate earnings and optimism, the report said.