Philly Fed Data Offers Snapshot of Main Street Small Business Funding Pressures

The Philadelphia Federal Reserve’s September Manufacturing Business Outlook Index offers up a monthly survey of manufacturers’ current business conditions and their outlook on what’s to come.

And as such, the Index serves as a snapshot of Main Street sentiment, at least in one corner of Main Street, so to speak. Broadly speaking, conditions are tough at the moment, may improve in the near term … and yet the capital markets and some macro-level concerns are still challenging, indicating the pressures that lie ahead.

The latest data show that manufacturing activity in the region declined overall. New orders and shipments were negative in September, where those metrics had been positive in in August.

But, the Fed reported, “most future activity indicators improved, suggesting more widespread expectations for overall growth over the next six months.”

The bridge to getting from current conditions to embracing future growth opportunities, and tackling exogenous shocks lies with having working capital on hand. A significant percentage of manufacturers are steeling themselves for some pandemic-related and input-price-related pressures: 22% expect COVID-19 impacts to worsen, up from 0% in June. As many as 24% expect worsening impacts from energy markets.

Looking Ahead and Eyeing Growth

“Over one-fifth expect the impacts of financial capital to worsen,” said the Fed.

If the capital markets are tougher to access, then it makes sense that smaller firms, manufacturing outfits among them — where 98% are small businesses with fewer than 20 employees — would consider, and might have to consider, alternative means of financing operations in anticipation of growth.

They need to buy the inventory and raw materials to get where they want to go. In recent PYMNTS surveys, 83% of Main Street small and medium-sized businesses (SMBs) said that they have access to some funding source in the event of an emergency, that funding will only last so long. A significant 57% of Main Street SMBs say they have funding to last through roughly two months. Joint research between Visa and PYMNTS Intelligence reveals that roughly two-thirds of middle market CFOs used external working capital solutions for strategic growth purposes. Another 34% used it to cover expected cyclical shortfalls and manage seasonal gaps.

We reported here that there have been groundswells in modernization efforts specific to the manufacturing sector. We found 36% of manufacturers are planning to planning to invest in purchase order innovation, which in turn helps speed payments and tap into new financing options.

And in but one recent example of the use of technology to improve the dynamics of trade finance, Bank of America said this week it has introduced a new tool to help business clients digitize trade finance. The bank’s CashPro Supply Chain Solutions tool is designed to offer supply chain participants “improved process efficiency and working capital optimization,” which includes the approval for invoice payments in minutes, speeding a process that can often take days or weeks. Elsewhere, Finastra Financial software firm Finastra has launched a trade finance partnership with Microsoft.