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Bernanke Warns Of 'Grave Threat' To U.S. Economy
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Tightening credit conditions are already affecting some consumers and businesses. A survey released earlier this week by the National Small Business Association found that more small businesses were feeling the pressure from the credit crunch. Two-thirds of the 250 member firms surveyed said they were being affected, compared with the half that said they felt the effects in a similar survey this spring.
A July survey by the Federal Reserve found that 60 percent of banks had tightened lending standards on commercial and industrial loans for medium- and large-size firms. Credit had gotten even tighter for small firms, as the survey found that 65 percent of banks had tightened standards for them, up significantly from three months earlier.
Nancy Floyd, founder and managing director of Nth Power, a California venture capital fund that provides start-up money for new firms focusing on energy technology, said she had not seen any change in equity investments. But bank loans for fledgling businesses could be another matter, she said.
The disarray in the credit markets is exacerbating unemployment in states already reeling from the housing downturn. In Florida, where home prices have nose-dived after doubling from 2000 to 2006, unemployment was 6.5 percent in August, well above the 6.1 percent national average and 2.3 percentage points higher than it was a year earlier.
"The increase from the unemployment rate was the mirror image of the fact that Florida was the leading state in job growth during the housing boom," said David Denslow, a University of Florida economist. "As it unraveled, it hurt us worse than it did other states."
Now the fallout from the housing downturn is being compounded by the credit crunch, leading to more unemployment, which further weakens the housing market.
"This is the land of the entrepreneur. We have all of these small businesses but now their access to the credit market has just dried up," said Bob Forsythe, dean of the University of South Florida's College of Business Administration. "Now some firms can't hold their ground, and they are going out of business."
Air taxi pioneer DayJet Services, based in Boca Raton, Fla., ceased operations suddenly last week, a consequence of its inability to arrange new financing, the company said. The shutdown eliminated more than 150 jobs.
In a message posted on the company's Web site, DayJet founder Ed Iacobucci said that his company's business model of flying business people relatively short distances in personal-sized, fuel-efficient planes was working. But the company just ran out of money. "Regrettably, without access to growth capital, we have no choice but to discontinue operations," he said.
