Once again we have good news to report for the economy as last week became the third straight week of improvement for several of the data points we’ve been tracking throughout the economic downturn. While we are still far from normal, the data we are seeing is the strongest since the first stay-at-home orders were issued. We may still have a long way to go towards a full recovery, but it does appear that the worst is behind us now.
For three straight weeks now, we have seen positive growth in the number of credit approval requests we have received. This translates to more companies placing purchase orders. The number of requests last week was up 11% from the week before and has risen to just above 50% or normal levels. Purchase orders hit a low of 25% of normal levels just a little over a month ago before the growth streak began. The total dollars being requested is also up significantly to 61% of normal levels after it dropped the week before to only 38%. While this would imply that large corporations are placing more orders than small businesses, the difference isn’t that great and it would be reasonable to assume that small businesses have improved over the last week along with major retailers.
While purchase orders have been tracking upwards, actual purchases has been a little bit more chaotic with large fluctuations taking place in both directions for pretty much the entire pandemic. This past week purchases reached 58% of normal levels, as compared to just 36% the week before. One reason for the differences between purchase orders and purchases could be that large corporations tend to place large purchase orders months in advance, while small businesses place purchase orders that they expect to get filled within a few days. On average, purchases have been fluctuating by 32% in either direction on a weekly basis, which has made it difficult to interpret what this data really means.
Payables data has also improved for the third straight week and have reached a level that they have not been at since early April. Given that there is a 30 day delay in seeing this data get affected, this is very promising considering that early April was just a week or two into stay-at-home orders. The percentage of current receivables has grown by 8% this week to 44%, the low point of 31% occurred back on April 27th. Even more important is that the number of current receivables has actually grown for the first time since the pandemic began, and by 16%. In terms of dollars, we also saw positive growth, but it wasn’t quite as strong. The total dollars that are current grew by nearly 3% over the previous week, marking the second time we’ve seen this number grow during the pandemic. The percent of dollars that are current improved by 1% over last week to 64%. While both data points have improved, the fact that the number of invoices has improved more than their dollar value would imply that much of this improvement is coming from small businesses that tend to place smaller orders.
While a larger percent of current receivables is a very positive sign, what is even more encouraging is a much smaller percent of older receivables. Despite seeing the first growth in the number of current receivables, the total number of outstanding receivables still went down over the last week. This means that even more past due invoices are getting paid now. The number of invoices that are 1-30 days beyond terms dropped by over 26%, and the number of invoices that are even older dropped by 5%. The same is true of total dollars. The total dollars of invoices that are 1-30 days beyond terms decreased by 4%, while even older invoices decreased by 1%. Once again, this large differential between numbers and dollars would imply that small businesses are actually having an easier time paying their past due bills than large corporations. We believe that a major reason for this may be that the expansion of the Paycheck Protection Program (PPP) has allowed many small businesses that were shutout of the initial round of funding, to receive funding during the second round.
At this time the number of invoices that are 1-30 days beyond terms is now 25% of all outstanding invoices, and account for 17% of total outstanding dollars. Both of these numbers are actually normal, which really isn’t too surprising. The oldest invoices in this group would have been created 2 months ago as the first stay-at-home orders were being issued. Therefore, we can assume that most of these orders were placed during the pandemic from businesses that already been impacted and knew the challenges that they would be facing at the time the order was placed.
What isn’t normal is the percent of invoices that are now 31-60 days beyond terms. While their numbers have decreased, they still account for 21% of all outstanding invoices and 11% of total outstanding dollars. The good news is that both of these numbers have dropped for the first time since the pandemic began, last week the numbers were 23% and 12% respectively. Under normal conditions however, these numbers should be approximately 3% and 1%.
Unfortunately, a lot of the decline in invoices 31-60 days beyond terms is due to growth in invoices that are even slower. Luckily these numbers haven’t grown quite as fast as the 31-60 day numbers have declined. That means that while a handful of businesses are falling even further behind, there are still more businesses that are catching up. It is also important to note that these businesses that are falling further behind were already beyond terms at the start of the pandemic. Certainly for businesses that were already struggling, the pandemic would have amplified their struggles. The perfect example of this can be seen in companies like J.C. Penney and Neiman Marcus, both of which have been struggling for years, but finally filed for bankruptcy during the pandemic.
At this point pretty much every state has opened up to some degree, although the states that reopened first seemed to have opened up more than those that have waited longer to do so. As a result, we will be comparing states that reopened prior to May 9th to those that reopened afterwards.
As we’ve seen over the past few weeks, the states that were earlier to open were the states whose local economies were hardest hit by the pandemic. The reopening of these states also hadn’t made a major impact in the first weeks of reopening. Last weeks data is slightly improved over the previous weeks, but these states are still struggling more compared to the states that have waited longer to reopen their economies. Normally these states that opened early would account for 40% of our volume, but as of last week they only accounted for 7%. This week we can report that they now account for 11% of our volume, which while an improvement, is still way below their normal levels.
In terms of payables, businesses in all states seem to have made steady progress since last week. Once again businesses in states that reopened early were 6% less likely to be past due than businesses in states that reopened later. However, since new receivables aren’t growing in these states that reopened early, the vast majority, 75% of their receivables, are past due, while only 58% of receivables are past due in states that waited longer to reopen. As a result, it appears that businesses in states that reopened sooner have had an easier time paying off their debts from prior to the start of the pandemic, but they have been unable to place new orders. Part of this may be due to unemployment rates in each state. Georgia, the first state to reopen, has been the hardest hit state in terms of unemployment. It does seem that the other states who were early to reopen have also been hit harder than states that waited longer to do so. Surprisingly, while New York has been home to the largest outbreak, its faired much better than most states when it comes to unemployment.
It seems quite clear that the decision to reopen has been made based on how badly the economy is hurting, and not on the state’s ability to treat or contain the COVID-19 outbreak. Unfortunately, it seems like how quickly a state reopens has little effect on how quickly the economy in that state recovers. While it is true that we have seen much improvement over the last couple of weeks, that improvement seems to mostly be coming from states that have taken slower and softer steps in reopening their economies. How quickly a state is able to recover has more to do with how badly they were hurt than how quickly they reopened their economies.
DSA Factors will continue to report weekly on what our data is showing until our economy recovers fully. While we still have a long way to go, it does appear that the recovery is underway, it just won’t happen as fast as the collapse.