This year was a record one for corporate and small business optimism in the U.S. A strong national economy and plans to expand and welcome rising revenues allowed business owners and executives to retain a positive outlook, despite potentially disruptive issues like a global trade war.
A look into 2019 does show some signs for concern, however, according to a recent report from Dun & Bradstreet. The analytics company issued its Quarterly U.S. Industry Delinquency & Failures Report for Q3 2018 this month, concluding that while failure rates for U.S. companies declined, payment delinquency rates actually increased.
Across industries, D&B calculated a 16.8 percent drop in business failure rates, with the business services industry showing some of the lowest failure rates overall.
Yet it's not all good news: the financial services and automotive industries both saw increases in delinquency rates for the quarter. Further, according to D&B Senior Director of Economics Nalanda Matia, finserv companies — especially smaller ones — "are finding it harder than the average business to keep their doors open."
It's a bit of troubling news for corporate finance as executives plan to enter into the new year. Matia recently spoke with PYMNTS about these trends and what they could mean for the year ahead, particularly with the Federal Reserve exploring more rate hikes, shifting trade relationships, and a broader climate of political uncertainty.
PYMNTS: What industries will be at risk for delinquencies in 2019?
Matia: We are seeing rising delinquency rates within the Automotive, Transportation and Retail sectors, each currently showing delinquency rates over and above the all-industry average of about 3 percent. These sectors registered delinquency rates of 5.6 percent, 4.8 percent and 3.9 percent respectively in the current quarter, and are ones to watch through H2 2019.
PYMNTS: What's causing delinquencies overall and at an industry level?
Matia: One immediate cause of rising delinquencies can be attributed to the rate hikes that the Fed has implemented throughout 2018 — three rate hikes already completed and one imminent for the Dec. 19 meeting. This gradual phasing-out of low-interest borrowing continues to impact industry in general, but especially sectors like Automotive that remain driven by credit. On that note, Housing (specifically the construction segment of it) will also be another sector to watch; data shows some weakness which may be partially attributed to the slowness in rising mortgage rates. Besides rising rates, consumer spending is also expected to slow down with the stimulus from the tax breaks having plateaued. There might also be some reduced demand for housing due to global political and economic uncertainties.
PYMNTS: What else will be impacting delinquencies and corporates' financial health overall next year?
Matia: We’ll be keeping an eye on the U.S. trade relationships with other countries, including China, in 2019. Tensions have allayed slightly with the signing of the USMCA [United States-Mexico-Canada Agreement] to replace the NAFTA [North American Fair Trade Agreement], but the implications will continue to unfold early next year. Trade tensions with China will also be a cause of concern, at least in H1 of 2019. Uncertainties in Western Europe also remain with the ongoing Brexit negotiations. These global factors may have implications on demand for U.S. goods in the global market and impact the overall health of industry.