Paul Ballew, Chief Data & Analytic Officer, D&B

Tuesday, April 1, 2014 – 8:30AM

Economic Briefing

Follow us on Twitter #DnBEconomy

#DnBEconBrief

Overview

• The Small Business Health Index erode further during the current month and has prompted D&B to become a bit more cautious on the economic outlook.

• Abnormally poor weather remains a factor and therefore Q2 readings will provide a better assessment of the underlying strength of the recovery.

• Employment growth is expected to continue to rebound in March with payroll employment growth of close to 200,000

• The Business Health Tracker remains at record levels and is up 5% y-o-y reflecting once again the strong balance sheet health of the private sector.

2#DnBEconBrief

The economy is still reeling from short term factors that caused a slowdown in the recent months

Jan 2012

Feb 2012

Mar 2012

Apr 2012

May 2012

Jun 2012

Jul 2012

Aug 2012

Sep 2012

Oct 2012

Nov 2012

Dec 2012

Jan 2013

Feb 2013

Mar 2013

Apr 2013

May 2013

Jun 2013

Jul 2013

Aug 2013

Sep 2013

Oct 2013

Nov 2013

Dec 2013

Jan 2014

Feb 201452.0

54.0

56.0

58.0

60.0

84.0

88.0

92.0

96.0

100.0

104.0

SBHI shows Slowdown in Business Activity

Small Business Health Index: Overall (right)ISM Nonmanufacturing Business Activity Index: 3-month Moving Avg.(Left)

3

• The drop in the SBHI signals the economy is still recovering from the long harsh winter

• The weather has started improving but the drag that it has left on the economy remains

#DnBEconBrief

On a more positive note the improvement in small business health over the last two years has become more pervasive across verticals

Jan 2013

Feb 2013

Mar 2013

Apr 2013

May 2013

Jun 2013

Jul 2013

Aug 2013

Sep 2013

Oct 2013

Nov 2013

Dec 2013

Jan 2014

Feb 20146.00

6.50

7.00

7.50

8.00

8.50

9.00

9.50

Standard Deviation of SBHI by Vertical • There is a steady decrease in the standard deviation of SBHI by vertical which is an indication of correction in the structural imbalance

• The imbalance in small business performance by vertical continues to decline and stands at its lowest since January 2013

4#DnBEconBrief

By geography, the imbalance seems to be more pronounced

Atlanta,GA New Orleans,LA Miami,FL Nashvl-Dvdsn,TN San Antonio,TX0.0

40.0

80.0

120.0

160.0

200.0187.8

168.4

139.8

123.4 122.5

Small Business Health Index: Top 5 MSAs

Chicago

,IL

Richmond,VA

Salt L

k Cty-

Ogden

,UT

Hartford

,CT

Phoenix,

AZ0.0

40.0

80.0

120.0

160.0

200.0

76.9 76.9 77.5 77.8 81.0

Small Business Health Index: Bottom 5 MSAs

• There remain large disparities between the highest and the lowest performing MSAs

5#DnBEconBrief

… with marked differences in growth patterns

2010 2011 2012 20130%

10%

20%

30%

40%

50%

60%

70%

80%

Atlanta, GA MSA: YOY Change in SBHI

2010 2011 2012 2013-15%

-5%

5%

15%

25%

Chicago, IL MSA: YOY Change in SBHI

• While the leading geographies have taken off growth during the past year, the lagging ones have slowed down

6#DnBEconBrief

And unlike performance across industry verticals the dispersion by MSA has partially reversed course

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 20130.0

5.0

10.0

15.0

20.0

25.0

30.0

Standard Deviation of SBHI by MSA• The dispersion between MSAs fell sharply early in the recovery period and has remained stable until early 2013

• The slight increase in dispersion during the past year may be a reflection of the shifting growth patterns among MSAs

7#DnBEconBrief

U.S. Jobs Health

• Based on the underlying factors, D&B expects Nonfarm payroll employment to improve this month, building on the trend from last month

• All sectors are expected to gain, with the notable being Retail and Construction that have been held back by the weather

8#DnBEconBrief

U.S. Business Health Index

• The overall US Business Health Index slightly increased in March to reach 53.15%. The index recorded its sixth-consecutive sequential increase and its ninth consecutive month above the important 50% “neutral” level.

• Again, this was the highest level recorded since the inception of the index in December 2010

9#DnBEconBrief

• On a year-over-year basis the overall index increased 5.0 percentage points, a slightly lower growth rate compared to the previous two months.

• All three components increased on a 12-month basis in March. The Viability component continued to record double digit year-over-year growth albeit at a slower pace.

May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Overall Viability Delinquency Total Loss Predictor

Note: Delinquency rates and the Total Loss Predictor are inverted to capture the effects that lower rates will raise the overall score.

Y/Y

Perc

enta

ge C

hg.

U.S. Business Health Index

10#DnBEconBrief

Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Jun-13

Aug-13

Oct-13

Dec-13

Feb-14

2025303540455055

Variance by industry

Dec-10

Mar-1

1Jun-11

Sep-11

Dec-11

Mar-1

2Jun-12

Sep-12

Dec-12

Mar-1

3Jun-13

Sep-13

Dec-13

Mar-1

4100

150

200

250

300

350

400

450Variance by employment size

Dec-10

Mar-1

1Jun-11

Sep-11

Dec-11

Mar-1

2Jun-12

Sep-12

Dec-12

Mar-1

3Jun-13

Sep-13

Dec-13

Mar-1

42

3

4

5

6

7

8

9

10Variance by geography

The virtuous cycle continues—Variance among all components in the Overall Business Health Index is dropping

11#DnBEconBrief

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Jun-13

Aug-13

Oct-13

Dec-13

Feb-14

0

10

20

30

40

50

60

Retail--Business Health Index (3-month moving average)

Hard hit sectors like retail have made significant progress over the last year despite the lack of robust consumer spending growth

12#DnBEconBrief

Dec-2010

Jan-2011

Feb-2011

Mar-2011

Apr-2011

May-2011

Jun-2011

Jul-2011

Aug-2011

Sep-2011

Oct-2011

Nov-2011

Dec-2011

Jan-2012

Feb-2012

Mar-2012

Apr-2012

May-2012

Jun-2012

Jul-2012

Aug-2012

Sep-2012

Oct-2012

Nov-2012

Dec-2012

Jan-2013

Feb-2013

Mar-2013

Apr-2013

May-2013

Jun-2013

Jul-2013

Aug-2013

Sep-2013

Oct-2013

Nov-2013

Dec-2013

Jan-2014

Feb-2014

400

600

800

1000

1200

New Private Housing Units Authorized by Building Permit (SAAR, Thous.Units) Housing Starts (SAAR, Thous.Units)

Source: U.S. Census Bureau

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13

Jan-14

Feb-14

Mar-14

46

48

50

52

54

56

58

Real Estate

Real estate firms are also well positioned even as the moderate recovery in housing has stalled a bit

13#DnBEconBrief

• Despite a drop in the SBHI that has been remarkably stable for several months D&B continues to project growth of close to 3%. The drop does warrant attention and clearer readings in Q2 have become very important

• On a positive note industries that have lagged the recovery are experiencing improvement and are poised to benefit from an acceleration in economic growth

• Correction of structural imbalances is the pre-requisite for sustained growth and it seems the economy has started on this journey

• US businesses continued to broadly strengthen their balance sheet health in March. The Business Health Index reiterates the same story: many lagging industries and regions are performing at an improved pace and are “catching up” to their comparable counterparts.

Summary

14#DnBEconBrief

Follow us on Twitter for up to the minute information and analysis

15

For more information, visit www.dnb.com/tracker

And follow the conversation on Twitter

at @DnBEconomy

#DnBEconBrief