U.S. small-business borrowing surges in June: PayNet

By Ann Saphir

(Reuters) - Borrowing by U.S. small businesses jumped to a record in June, an index released Wednesday showed, signaling tighter labor conditions that may help build the case for the Federal Reserve's first interest-rate increase in nearly a decade.

The Thomson Reuters/PayNet Small Business Lending Index rose to 143.3 in June from an upwardly revised May reading of 131. It was the highest level since the index was launched in 2005, and was up 19 percent from the level a year earlier.

The increase is "a signal of some fundamental, underlying strength in private companies that is really not being registered anywhere else," PayNet founder Bill Phelan said. "Job openings are going to be harder to fill. ... (Companies) will have to raise compensation to attract workers."

Such signs are exactly what Fed officials have been waiting for, as they gauge the right time to lift short-term borrowing costs from near zero, where they have been for 6-1/2 years.

The small-business borrowing index has historically tracked ahead of U.S. gross domestic product growth by two to five months, and is a good predictor of capital spending and job growth, Phelan said.

U.S. GDP expanded at a 2.6 percent annual rate last quarter, buoyed by consumer spending.

Last week, the U.S. central bank said it would need to see "some further improvement in the labor market" and more confidence on the inflation outlook before it will raise rates.

The delinquency rate on loans more than 30 days past due ticked down in June to 1.49 percent, separate data from PayNet showed, suggesting that the increase in borrowing by small businesses has not come at the expense of their financial health.

PayNet collects real-time loan information such as originations and delinquencies from more than 250 leading U.S. lenders.

(Reporting by Ann Saphir; Editing by Richard Chang)