The U.S. economy continues to be stronger than expected, even as a looming downturn is still expected. Inflation remains persistent with March prices 5% higher than a year ago, but slowing from 6% inflation in February. Rent inflation continued to increase in March to 8.3%, the highest in over 40 years. Food inflation declined for the seventh consecutive month to 8.5% in March, down from 9.5% in February. The cost of energy in the U.S. in March was 6.4% lower than a year ago, the first decline since January 2021. One of the biggest drivers of inflation over the past year was energy, but in March energy was 6.4% lower than a year ago, the first decline since January 2021. The labor market continues to be tight with low unemployment still driving wages higher, but inflation makes real wages stagnant. With these mixed signals, it will be interesting to see if the Federal Reserve continues to increase interest rates, or if they pause rate hikes at their May 3rd meeting. New businesses are opening at a high pace, with the 2022 monthly average 44% higher than the pre-pandemic 2019 monthly average. Those newer and smaller businesses are seeking a greater portion of commercial credit and have accounted for a larger portion of new commercial accounts opened. Both consumer and commercial delinquencies are trending upward since 2021 lows. Delinquencies are rising in the newer and smaller business segments and may be the first to feel the brunt of tightening credit criteria. What I am watching As delinquency begins to rise, lenders are tightening underwriting policies. Businesses will find it harder to obtain capital and may turn to alternative funding sources besides traditional banks. Alternative lenders generally charge higher interest rates, and in a rising interest rate environment, they are getting even higher, so businesses will be hard-pressed to find affordable funding sources. Commercial bankruptcies, which were at historical lows the past year, started to increase in Q4 2022 and are likely to continue to increase, especially if businesses in need of capital struggle to obtain it. Download your copy of Experian's Commercial Pulse Report today. Better yet, subscribe so you'll always know when the latest Pulse Report comes out. Subscribe Today

In this episode of Experian Business Chat, I sit down with Sr. Product Manager Thy Phan to discuss the portfolio risk challenges faced by risk managers during uncertain economic times and how Experian's Ascend Commercial Suite can help them. Ascend offers clients a comprehensive view of data, historical trends, and industry insights, enabling them to make informed decisions about credit policies and strategies. With the platform's data-agnostic approach, clients can better target their marketing efforts, identify growth opportunities, and adapt their product offerings to suit the changing economic landscape. What follows is a lightly edited transcript of our interview. Gary Stockton: Well, hello, and welcome to Experian Business Chat, where we talk about commercial risk and how Experian data and analytics solutions solve a variety of problems. I'm Gary Stockton, and today I'm here with Thy Phan, Product Manager in Business Information Services, for our Ascend solutions. Can you talk about the challenges you are seeing for risk managers in the economy? Thy Phan: Yeah, absolutely, Gary. So with the clients that we've mainly been working with, three common challenges come to mind when we talk about challenges that credit managers face. The first is data, the ability to obtain data, and the ability to link data. There are first-party data sets in-house, which can be dispersed across different platforms and different environments. So it's difficult for them to extract the data and pull it out in an environment where they can then link it all together. Secondly, our clients rely on many different data partners, such as Experian, for credit and other alternative data. So the challenge that the client's face is doing all the prep work to process the data in a way that they can start analyzing and looking at the data. And it's difficult for them to really link the data sets together to get a more comprehensive view of their customer. The second challenge that we often see is the lack of analytical environments or software and tools that their teams can use to develop models, for example, run analytics quickly and then deploy into production. For those clients that actually do have those tools and platforms available, the resources are very limited. So often, what we see is they're fighting for resources across different projects, which makes it difficult or slow to roll out new things. And then, thirdly, the reporting aspect of it. It's difficult for clients to produce reports on a regular cadence that can inform business decisions on the fly, on demand. So those are the three main challenges that we often see with our clients today. What does Experian have to help manage these challenges, and how can clients use data to understand what their next step is during a recession? Thy Phan: Here at Experian, we have a product suite called the Ascend Commercial Suite. It is an analytical platform that is cloud-based and Experian hosted. The value for the client is that Experian provides all of the data upfront. So all of our historical credit data, alternative data, we prep and load all the data into the platform ahead of time for the client. The platform is also data-agnostic, which means that we can load any data set onto the platform for the client, including first and other third-party data. Experian would do the heavy lifting to match and link all of the data for the client, so they can leverage Experian's premier linking logic, and matching logic to get a comprehensive view, a consistent view across the board, and everything prepped and ready to go. All they have to do is log into the environment, and they can start their work. Also, there's a reporting capability as part of the platform. So they can pull reports anytime anybody can go in there, pull a report, and be able to get those insights in terms of the trends and shifts, and it has a co-authoring capability. So more than one resource can go in and work on the same project at the same time, so it can be dispersed across the business and shared so that things can be done on a more regular cadence and at a quicker pace. How can Ascend help risk managers be more confident in their credit policies when times are uncertain? Thy Phan: There are three ways that Ascend really helps. Because all of the data is in there and clients are getting a very consistent and comprehensive view of the different data sets of their customers, several insights can be observed. The first one is different risk factors. Are there different risk factors that really impact their portfolio? Gary Stockton: Wow, that's incredibly powerful. And particularly for risk managers who are probably right now trying to figure out if they're in a good position if they're strong enough, and if they've got the right level of risk in their portfolio. Thy Phan: Absolutely. And one other thing that I will mention that's very powerful is the fact that they can start predicting where the economy is going to be based on some of the industry trends; for example, if we're looking at late-stage delinquencies, maybe those delinquencies haven't shown up in their portfolio yet, but because they have the industry view, they can see that maybe late-stage delinquencies are starting to pick up in the industry. And so they can get a view of the changes in the macroeconomic situations potentially that they may not be able to see just by looking at their portfolio. If we're looking at late-stage delinquencies, maybe those delinquencies haven't shown up in their portfolio yet, but because they have the industry view, they can see that maybe late-stage delinquencies are starting to pick up in the industry. Thy Phan, Experian Can you tell us what you are seeing as far as new capabilities and strategies that are leading to success for our clients? Thy Phan: Yes. The first example is at the top of the funnel. You have to be able to do more with less, especially when the economy turns and budgets are going to be tightened. So some of the strategies that our clients are deploying are having the data available, they can load in their performance data, and identifying profiles of their ideal customers, not only from a marketing perspective but also from a credit perspective with a limited budget. They don't want to market to just everybody; they want to market to customers that are more likely to buy and more likely to qualify. Secondly, the ability to see growth opportunities, like white space analysis or market penetration. Are their customers mainly located in a specific geography or particular industry? Are there opportunities to grow outside of those core areas? With the economy shifting, it's critical for clients to find more revenue streams elsewhere. And thirdly, potential shifts in product offerings. For example, maybe previously, when the economy was doing well, one product may have made sense and been more valuable to customers, and now with the potential shift, the client may need to shift to a different product or a different go-to-market strategy. The data can help inform some of that decision-making. Gary Stockton: Well, Thy, thank you for sharing your perspectives and insights with us. If you would like to learn more about Ascend, we invite you to watch our benchmarking demo, where analytics consultant Emily Garrett shares use cases found in Experian's Commercial Ascend Benchmarking Dashboard. Learn more about Ascend Commercial Suite

Lenders are experiencing an increase in delinquencies and are therefore tightening credit criteria. According to a survey of loan officers, underwriting standards are becoming particularly more stringent on commercial loans. Moreover, the recent news of the SVB collapse has also highlighted the vulnerability of small banks and served us as a reminder of their crucial role in serving local communities. During the days immediately after the SVB failure, we saw a sizable shift in deposits from small banks to larger institutions. A liquidity crunch affecting small banks puts their lending capacity at risk and could develop into a credit crunch in the communities served by them. Furthermore, as mobile banking becomes more prevalent and friction on fund transfers is minimized, financial institutions must work harder to retain their deposit customers. In all, the financial sector has shown remarkable resilience weathering the recent challenges, and small and medium-sized banks seem to have successfully covered their liquidity gap through borrowing from the Fed. Moving forward, it is essential for small and mid-sized financial institutions to reassure their customer of their stability and to prepare for additional interest rate hikes. Large institutions should focus on streamlining their acquisition processes to capitalize on a potential influx of new customers, and to implement fraud detection systems to identify bad actors while minimizing disruption to legitimate applicants. What I'm Watching Interest Rates: The Fed has been sending mixed signals lately, stating that it remains committed to fighting inflation (which implies additional rate hikes) yet signaling a willingness to slow down or even pause the rate increases in light of recent events and the pressure that rate increases put on banks’ deposits. Small and Medium-Sized Banks’ Financial Health: Smaller institutions seem to have successfully managed recent challenges. Keep an eye out for further signs of stabilization, and the impact of additional rate increase on unrealized losses and liquidity. Regulatory Environment: In reaction to the SVB and Signature Bank failures, it will be interesting to see if regulators issue new requirements for banks.

If the current economic cycle has you craving more insight into the small business sector you have come to the right place. We are delighted to release the Spring 2023 Beyond The Trends report. This release finds credit markets remaining largely open across risk tiers, but small business lenders will be more sensitive to market factors such as labor, wages, inflation, global supply chain disruptions, sanction activity, and rising delinquency trends as small businesses look for growth as consumer spending although strong, begins to moderate. Here are a few highlights contained in the latest report: Inflation-adjusted income has risen for seven-consecutive months Consumers spend as income acceleration continues. This spending increase does not mean that consumers are getting more value or products for the purchase volume. It also does not mean that spending is hitting all sectors of the market. Retail spending slowed in February for department stores, restaurants, and bars. Consumers continue to spend on vacations, up 17% (Bureau of Economic Analysis), and luxury goods through the first part of the new year. This behavioral volatility in spending may have retailers reconsidering their strategy for the remainder of the race. Costs are still elevated, and that cuts into the buying power of the average consumer. Inflation appears to have peaked, but moderation has been slower than expected. Consumers may see some relief as price acceleration eases, fuel costs decline, and food inflation cools. However, service industry inflation and shelter costs are expected to remain elevated. Factory and manufacturing velocity follow consumer demand As retail-focused supply chains return to pre-pandemic efficiency and shipping container costs decline, retail spending slowed in February. Retailers are cautious in pre-order inventory volume for 2023 due to concerns about economic instability. Download Spring 2023 Beyond The Trends Report

Account takeover fraud is a lucrative type of identity theft in which online account information or login credentials are stolen and used for nefarious means. When fraudsters gain access to an account, they manipulate things like passwords and usernames to prevent the rightful account owner from receiving notifications so they can make withdrawals, submit fraudulent payments, or open new accounts using the compromised credentials. A 2021 Javelin study1 reported huge increases in account takeover fraud, with losses increasing 90% from the prior year. With limited resources to devote to cybersecurity, small and midsize businesses are at a higher risk for account takeover. Small business account takeover, also known as “corporate account takeover”, represents a significant and ongoing threat to both businesses themselves and the lending institutions who service with them. In this article, we are going to review how corporate account takeover manifests in various businesses who are applying for credit and explain how risk professionals can leverage automated fraud detection software to improve review processes, streamline their lending services, and perhaps most importantly protect their reputations. What is Corporate Account Takeover Fraud and how does it happen? Account takeover is an insidious type of cybercrime in which fraudsters or hackers gain access to online accounts and use them to withdraw money, make purchases, or extract information. Their goal is either to use that information to gain access to associated accounts or sell it on the dark web to increase damage and their potential profit. Account takeover schemes can happen right under the business or business owner’s nose, and the results vary. Some fraudsters are looking for instant gratification and a big payout while some play a longer game, accessing accounts via weak passwords, malware, or email phishing schemes and selling sensitive information on the dark web to other cybercriminals. 62% of businesses experienced an increase in fraud losses due to account opening and account takeover. Source2 Small and midsize businesses are particularly vulnerable to account takeover schemes as they often have limited resources to devote to cybersecurity, or weaker security measures in place compared to larger corporations. The 2021 Identity Fraud Study by Javelin Strategy & Research found that the number of identity fraud victims in the US increased by 113% between 2019 and 2020, with small businesses experiencing a higher rate of fraud than larger businesses3. Here are a few examples of account takeover schemes in small business lending: When an account takeover attempt has been successful, there is an increase in suspicious activity like changes in usernames, passwords, and addresses, or unauthorized bank account activity or transfers. It is also common for fraudsters to use the newly stolen information to try and open new lines of credit, all before the business or business owner is aware there has been a breach. According to the Better Business Bureau (BBB), business email compromise affects organizations big and small, and has resulted in more losses than any other type of fraud in the U.S. with 80% of organizations receiving at least one email in a scam attempt4. How does Account Takeover impact lending services? Despite uncertain economic circumstances, small and midsize businesses continue to press on and evolve. According to Experian’s 2023 Beyond the Trends Report, SMBs make up 99.9% of all businesses in the U.S. and new business applications continue to rise5. But weaker security measures and limited resources mean SMBs are at a higher risk for account takeover fraud. This ultimately impacts lending institutions, who may unknowingly release funds to a compromised business account. Aite research shows that 64% of financial institutions are seeing higher rates of Account Takeover Fraud attacks now than prior to the pandemic. Source6 So how does this work in an SMB environment? A fraudster who has successfully obtained the account information of a small business, small business owner, or personal guarantor can bypass legacy security protocols to appear legitimate. That fraudster can then commit various harmful acts, like apply for lines of credit, open new accounts, and make transfers. For more insight into how these account takeover attacks play out, consider the realistic scenarios below: It’s important to note that most, if not all, lending services providers experience some degree of fraud loss, and competing business priorities no doubt play a role in the adoption of fraud prevention technology. Budgetary restrictions, high turnover rates, and technological expertise and limitations all play a role, but without modern fraud solutions in place, lenders run the risk of experiencing more than just financial losses. They risk losing confidential or proprietary information, encountering legal liabilities, and perhaps most importantly damage to their reputation. So, the question is, what kind of risk are you willing to take? Account takeover schemes, though pervasive, are just one type of fraud attack. The reality is fraudsters continue to evolve and become more sophisticated all the time, and to stay competitive lenders should consider implementing a comprehensive fraud strategy that will arm them against unnecessary losses. If you are a financial institution coming to terms with growing fraud rates, below are some questions you should consider asking. Questions to ask when formulating your fraud mitigation strategy: What kind of fraud losses are you currently experiencing and what impact are they having on your business? Are you able to accurately assign your fraud losses? Do you have a fraud prevention strategy? If so, what types of fraud does it solve for? If not, what are your barriers to implementing one? What do your current approval processes look like? How much time are you spending manually reviewing applications and what would the cost-to-benefit be if you had something automated in place that could streamline those efforts? What solutions, do you have in place? Do they solve for one or more types of fraud? For example, can they detect the specific information anomalies that indicate an account takeover? Proactive, automated solutions are the key to preventing Account Takeover Fraud With increasing business applications and high fraud rates, now is the perfect time for risk professionals and lending institutions to take a close look at their current fraud prevention strategy and consider what improvements could be made. Many legacy fraud solutions are limited in scope compared to their modern counterparts, and often leave large referral volumes on the shoulders of analysts who simply can’t keep up with demand. This, coupled with outdated screening protocols which offer limited scope into the full picture of the application, makes it that much harder for analysts to detect account takeover fraud even when it’s right in front of them. Some institutions use tools that only seek to meet for Know Your Customer (KYC) or Know Your Business (KYB) requirements, while others may only look to verify the identity of the personal guarantor. But the key to preventing account takeover fraud is to implement an automated fraud solution that uses different data sources to confirm both the identity of the applicant and their association to the SMB. 75% of organizations rate developing better fraud detection processes as an important focus area with 71% currently planning to implement new digital fraud prevention solutions. Source7 The most effective fraud solutions provide more than simple KYC and KYB checks, they also look for various inconsistencies and connections between the business owner, personal guarantor, and the business itself. For example, a fraudster who has committed account takeover might appear legitimate on an application, passing KYC identification checks without issue, but perhaps they aren’t associated with the business, or the business itself is illegitimate. A comprehensive fraud solution looks beyond KYC and KYB at multiple and varied data sources, like professional and social networks, SBA status, website linkage, and more to detect hidden anomalies indicative of account takeover fraud. The best part about these fraud screening tools is that they work during the account opening or onboarding stage of the customer lifecycle to proactively prevent account takeover fraud losses before they impact lenders. Implementing a comprehensive fraud strategy may be in competition with other business priorities, but lenders who prioritize upgrading their outdated or limited risk processes to a seamless, automated fraud strategy will set themselves apart. They will effectively and efficiently reduce their risk of approving fraudulent applications, including those which have experienced account takeover, save time and resources spent manually reviewing large volumes of applications, and fortify their reputations as institutions that put integrity first. Sources: https://javelinstrategy.com/press-release/identity-fraud-losses-total-52-billion-2021-impacting-42-million-us-adults?cmpid=na-im-23-blog-what-is-account-takeover-fraud-how-can-you-mitigate-risk https://www.experian.com/decision-analytics/global-fraud-report https://javelinstrategy.com/research/2021-identity-fraud-study-shifting-angles https://www.bbb.org/content/dam/0734-st-louis/bec-study/bbb-explosion-of-bec-scams.pdf https://www.experian.com/business-information/landing/beyond-the-trends-report https://aite-novarica.com/report/key-trends-driving-fraud-transformation-2021-and-beyond?cmpid=Insightsblog-021121-solving-fraud-problem-account-takeover-fraud https://www.pymnts.com/study/reframing-anti-fraud-strategy-modernization-risk-management-b2b-ap-ar/

Bankruptcies and collections are on the rise since mid 2022. Pandemic-related relief and forgiveness suppressed collections for most of 2021 and the first half of 2022. Since the height of the pandemic, new business openings are at a highly elevated level. Businesses under two years in businesses accounted for 40% of new commercial credit account openings in 2022, up from 27% in 2020. While new businesses seek credit, they tend to be risky – – as it is broadly known that about a third of all businesses fail within the first couple of years in business. That is evident in the collections numbers, which show that newer businesses are driving the overall higher collection levels. As collections become a larger factor, it is critical for lenders to look for ways to mitigate losses through portfolio management efforts. Further interest rate increases likely this year Recently, Federal Reserve Chair Powell indicated that further interest rate increases are likely this year. However, the magnitude of increases is unknown since there are still mixed signals in the economy. Inflation has been slowing but is persistent. After February’s labor market reported strong numbers with continued low unemployment and high job creation, eyes will turn to the inflation report coming out on March 14th. With mixed economic indicators, it will be interesting to see if the Fed increases rates a more modest quarter of a point or takes a more aggressive position with a half-point increase at their March meeting. Download your copy of Experian's Commercial Pulse Report today. Better yet, subscribe so you'll always know when the latest Pulse Report comes out. Subscribe Today

Experian study of utility data reveals opportunity for unscored small businesses through early bureau data contribution. In today's business landscape, creditworthiness is critical to accessing the capital necessary for growth and success. However, many businesses, particularly small businesses, struggle to establish and maintain a strong credit profile. These businesses may be profitable, but to the credit system, until enough of their trading partners report payment experiences to the credit bureaus, they fall into a "Credit Invisible" segment. Experian Commercial Decision Sciences recently conducted a study of a regional utility company's portfolio, revealing a significant number of credit-invisible small businesses that had been doing business with the utility for years, yet lacked a business credit profile with Experian. This underscores the importance of data contribution to credit bureaus for establishing credit profiles, and the study provides valuable insights into the relationship between business age and credit risk. By measuring the benefits of being credit established longer, businesses can improve their credit risk profile and gain access to commercial credit. The pandemic reveals a deep disparity between large and small businesses As the U.S. continues to pull itself out of the pandemic, key economic measures provide divergent signals. From the height of 15 percent unemployment in April 2020, the rate has edged down to 6 percent by March 2021. In 2020, the stock market saw double-digit growth, supported by drastic government spending and monetary policy levels. Despite or because of the pandemic, there were clear winners from Wall Street. But on Main Street, utter devastation. According to Yelp, 55% of businesses marked as closed on Yelp could not re-open and have gone out of business. Commercial data contribution lags behind consumer Businesses, just like consumers, need capital to survive and prosper, and establishing good credit is a vital component. Most consumer credit profiles are rich in payment history because lenders and financial institutions must contribute their consumer financial trade payment experiences, such as credit card, loan, lease, and line of credit, to a credit bureau. However, there is no such requirement for commercial trade experiences. Therefore, unlike consumers, it’s not enough for a business to pay its credit obligations on time to develop a healthy credit profile. For their excellent payment history to be reflected in their credit profile, creditors must contribute the payment information to a commercial credit bureau. While the permanent business closures noted by Yelp are troubling, the pandemic saw record numbers of new business filings. According to census data, nearly 5.4 million applications to form new businesses were filed in 2021, a 53 percent increase over 2019 and 23 percent higher than 2020. A high percentage of these new businesses are minority-owned. These businesses and millions of other “Credit Invisible” businesses will need to establish a commercial credit profile with a history of payment experiences in order to qualify for better credit terms. Data contribution is essential to help these unscored small businesses succeed. Digital transformation comes at a cost for some For the past several years, there has been a concerted shift toward automated credit decisions, driven by efficiency, competitive pressures, and improving the customer experience. However, the push toward automation adversely impacts businesses with limited or no credit experience. In the animation below we outline an example of the typical credit approval process and steps where small businesses may fall off the automation path. The point of auto decisioning is to ensure a smooth and seamless process from application to approval for all applications, but it falls short in practice. When the credit inquiry is submitted to a commercial credit bureau, the business has to be found or matched. If matched, the business has to have existed for a period of time. Then there are negative event exclusions, and finally, the approval is based on the risk score. For businesses that do not have a credit profile, or even for those that do, if the credit age is not mature enough, getting credit is a slow and bumpy process. Commercial credit experience expands with age As the businesses survive past infancy and continue to mature, their credit experiences also grow. The diagram below shows the relationship between the age of a business, the average number of commercial tradelines, and the average total balance across those tradelines. For the first five years, the average spend increases at a rate of over 125% per year, while the average number of trade relations doubles during this time. The higher rate of spend per tradeline indicates the business is growing, and those businesses can establish more tradelines as they mature. The second chart below focuses on the Financial Stability Risk Score (FSR) of the businesses in the utility company portfolio. The Financial Stability Risk Score predicts the likelihood of business bankruptcy or significant delinquency, defined as 75% or more of outstanding balances 91 days plus past due. The average risk score for all businesses in our dataset is 50. The Financial Stability Risk Score average will increase as the businesses age, but as the chart shows, businesses do not get to a score of 50 until they are 5 to 8 years old. The chart shows that the vast majority of businesses become financially stable after 12 years. As businesses mature, their credit trade relationships grow. As credit trade experience grows over time, the risk of business failure decreases. This animation illustrates that transformation over time. Utility data analysis Let’s examine the negative consequences for businesses that do not have a commercial credit presence. Experian assisted a utility company with the development of a commercial deposit strategy by calculating the risk associated with the Financial Stability Risk score with their customers’ likelihood of severe delinquency in paying their utility bills over the next 12 months. The chart below shows the relationship between the score range and the bad rate (br), which is the likelihood of severe payment delinquency. As the score gets higher, the bad rate gets lower, from 24% in the worst score range to 6%. Understanding the risk associated with the score, the utility company can use the score to appropriately decision new applicants, assessing deposits for higher-risk businesses to mitigate against future loss. The blue vertical bar represents the percentage of their portfolio that falls into each score range, so the utility company understands the severe late payment risk for each of these scored accounts. Credit invisible small businesses are unduly penalized Unfortunately, 30% of the utility company’s population were unscored, and for this unscored segment, the bad rate is 21%. If these unscored accounts had been new applicants, they would have been assigned a 3-month deposit. However, because they are existing customers, we can look at the relationship between the age of the account and the bad rate. The chart below shows that 66% of the unscored segment had been active for 0-4 years with them, and the bad rate is 24%. For accounts 5-11 years old, the bad rate decreases to 19% but is still high enough to warrant a deposit. For accounts 12+ years old, they are at lower risk of becoming severely delinquent and should not be assessed a deposit. That’s 10% of the unscored segment that would be unduly penalized because they are credit invisible. In Summary Data contribution to a credit bureau can have significant benefits for establishing a commercial credit presence. As Experian highlights, many businesses, even those with a long history, may not have an established credit profile. By contributing data to a credit bureau, businesses can accelerate the process of building a stable and mature credit profile, which in turn can increase access to capital and better terms. This is especially important for emerging businesses that need continued access to credit to survive and thrive. In short, early data contribution can dramatically improve a business's creditworthiness and chances of success. In the case study, we see that younger businesses without a credit score are at high risk. How would the risk of these businesses have changed if this utility company had been contributing their portfolio accounts receivable data to a bureau? We know that businesses reach an average score of 50 around 5 to 8 years of being established on a credit bureau. By contributing a commercial portfolio to a bureau, the data provider will increase the likelihood of success for every business in their portfolio. And, in turn, every business in their portfolio will likely become lower risk and better customers. Learn more about the Trade Data Contribution Program

Consumers are borrowing to maintain spending levels even though higher interest rates make borrowing more expensive Consumer spending is by far, the largest component of the U.S. economy. At the height of the COVID-19 pandemic lockdowns, consumers were not spending and instead saved huge amounts of money. Since re-openings occurred, consumers went on spending sprees to make up for the time in lockdown. The higher demand along with supply chain issues are partly driving the high inflation. Consumers dug into their savings to continue to spend and cover higher prices. With savings dwindling, the FDIC reporting that Q2 & Q3 2022 were the two largest recorded declines in bank deposits in the U.S., consumers have increased borrowing so that they can continue to spend. As the Federal Reserve increases interest rates, a large portion of the increase in debt burden is becoming much more expensive than a year ago. These highly leveraged consumers are likely to begin driving up delinquencies, causing banks to react and tighten lending policies. With bank account deposits dwindling and borrowing becoming less available and more expensive, consumers will have no option but to cut back on spending. When consumers reduce spending, the first sectors to be impacted are discretionary areas such as travel, accommodation, restaurants, arts and entertainment, and certain retail. Businesses in those sectors have been seeking higher amounts of commercial funding over the past year compared to pre-pandemic levels. In addition, their delinquencies are increasing, indicating that these sectors are tight on cash. If sales decline at a high pace going forward, these sectors may feel the brunt of the impact of an economic slowdown. What I am watching: The Federal Reserve has taken an aggressive approach to slow the economy and cool inflation to return to the target 2% inflation rate. However, since the Fed’s most recent rate hike on Feb. 1, the January jobs and retail sales reports both came in stronger than expected, including a 3.4% unemployment rate which was the lowest in 53 years. While CPI is showing inflation slowly reducing, the latest PCE numbers show consumer prices continuing to increase. These factors are a good reason to believe that the Federal Reserve is likely to not only continue to increase interest rates at their March meeting and beyond but will also revert to larger increases of more than a quarter of a point.

This week Experian and Oxford Economics released the Q4 2022 Main Street Report. The report provides insight into the financial well-being of the small business landscape. Critical factors in the Main Street Report include business credit data (credit balances, delinquency rates, utilization rates, etc.) and macroeconomic information (employment rates, income, retail sales, industrial production, etc.). Report Highlights Consumer sentiment improved in Q4 2022, despite a softening of spending behavior. This positive behavior has contributed to the positive health and growth perspective of small businesses heading into 2023, leading to stable cash flow performance. In addition, commercial lending markets remained open and commercial delinquencies returned to pre-pandemic levels. However, higher goods and services costs may pressure spending as affordability tightens and personal cash flows thin. The US economy grew strongly in Q4 2022, but the core of the economy was soft, indicating that a repeat performance in early 2023 is unlikely. The trend in job growth has decelerated, and the Fed needs to engineer a soft landing. The Fed is pushing back against market expectations of rate cuts and is likely to hike more than expected. Download Q4 2022 Report  

Get the latest quarterly small business trends Mark your calendars! Experian and Oxford Economics will present key findings in the latest Main Street Report for Q4 2022 during the Quarterly Business Credit Review. Ryan Sweet, Oxford’s U.S. Chief Economist will share his take on Experian’s most recent small business credit data and a macroeconomic outlook for the coming quarter. Brodie Oldham, Experian’s V.P. of Commercial Data Science, will cover commercial credit trends. Presenters Brodie Oldham, V.P. Commercial Data Science Experian Ryan Sweet, U.S. Chief Economist Oxford Economics Q4 2022 Main Street Report The Q4 2022 Experian/Oxford Economics Main Street report will release at the end of February. If you are not already subscribed to thought leadership updates, be sure to sign up for updates on our Commercial Insights Hub. Event Details Date: Thursday, March 9th, 2023Time: 10:00 a.m. (Pacific), 1:00 p.m. (Eastern) Why you should attend: Leading Experts on Commercial and Macro-Economic Trends Credit insights and trends on 30+ Million active businesses Ask our panel questions in real-time Industry Hot Topics Covered (Inclusive of Business Owner and Small Business Data) Commercial Insights you cannot get anywhere else Peer Insights with Interactive Polls (Participate) Discover and understand small business trends to make informed decisions Actionable takeaways based on recent credit performance Save My Seat

For many, the outlook for 2023 was gloomy and we were all bracing for a bad year for the economy. But, so far, the economy has been extremely resilient with Q4 GDP coming in above expectations at 2.9%, inflation cooling, supply chain issues easing, and unemployment remaining low. In addition, consumers continue to spend — the 2022 holiday shopping season saw holiday spending increase by 7.6% YOY, according to Mastercard, as consumers kept their discretionary spending for goods and services heightened. While the retail sector appears healthy at this time, the uncertainty has led to planning issues. 2022 & 2021 marked the highest volatility of monthly inventory recorded since the data was tracked in 1992. What I am watching: In 2023, retailers will fight for consumer spending, but consumers will find their purchasing power limited as interest rates increase and debt payments increase. U.S. small businesses are already facing an extended period of higher costs and weakening demand. All eyes will continue to focus on the Federal Reserve’s actions to slow U.S. economic growth, fueling small business development. The focus will be on cooling inflation in the next few years and The Fed indicated they plan to continue to increase rates at their Feb 1st meeting but at a lower amount than the large increases of 2022. Lenders and creditors will need to assess how they will respond to struggling small businesses in 2023 as consumers tighten their belts. Download your copy of Experian's Commercial Pulse Report today. Better yet, subscribe so you'll always know when the latest Pulse Report comes out. Subscribe Today

After a busy holiday season, we are pleased to announce the publication of our Winter 2023 Beyond the Trends report. Holiday spending increases by 7.6% Small businesses' health and performance in 2022 was strong as consumers spent beyond their means, to prolong demand behaviors learned in an economy overflowing with stimulus, coming out of the pandemic where personal savings was running lean. Despite impact of inflation on incomes, spending continues Retailers will fight for consumer spending, but consumers will find their purchasing power limited as interest rates increase and assumption of unexpected debt payments. Other highlights Consumer credit overall decreased 16% month over month in the fourth quarter as delinquencies climbed as mortgage markets continue to slow. New unsecured credit card debt rose 4% as thin consumer savings forced more debt to the consumers credit card. New U.S. emerging businesses seeking credit is down 5.7% year over year as new business applications in the U.S. slow and commercial delinquencies rise.     Experian saw a 61% YOY increase in the percentage of high risk small business credit inquiries with emerging business seeking credit up 78.5% year over year with limited commercial credit history in the 4th quarter leading to lower-than-normal average credit lines across the industry. Small business lenders will focus on four critical areas in the coming months to ensure their businesses remain stable and continue to grow. Market expansionDeterring fraud Limiting portfolio exposureDeveloping loyalty among profitable customers Download Winter 2023 Beyond The Trends Report