Small business borrowing rises in August, slowly

Tue Oct 1, 2013 2:07pm EDT
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By Ann Saphir

(Reuters) - Borrowing by U.S. small businesses edged up in August, pushing an index of borrowing to a six-year high.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the volume of financing to small companies, rose 1 percent to 116.6, the highest level since August 2007. The index registered 115.4 in July, revised from an initial reading of 117.7, PayNet said on Tuesday.

Historically, PayNet's lending index has correlated to overall economic growth one or two quarters in the future.

The reading came as investors were boosting expectations the Federal Reserve would likely reduce its massive stimulus program in September.

Those expectations, however, were misplaced. The Fed decided at its meeting last month that the economy was not strong enough to justify reductions in stimulus, and it reiterated its promise to keep buying bonds until the labor market strengthens further.

Because small companies typically take out loans to buy new tools, factories and equipment, more borrowing could signal more hiring ahead.

But the sluggish pace at which borrowing is increasing makes accelerated growth in jobs unlikely, PayNet President Bill Phelan said.

"I would expect continued slow growth in the economy," Phelan said in an interview.   Continued...