D&B Data Show Business Health Varies across US Regions

By Adam Morehouse | Dun & Bradstreet Editor

May 13, 2015

The financial health of US companies has varied widely since the beginning of 2015, with companies in some geographic areas seeing more fractured financial risks than others, according to Dun and Bradstreet’s macroeconomic indicator, called the Overall Business Health Index.

States such as Nevada and California in the West region and Georgia and Florida in the South region continue to face challenging conditions and are recording elevated levels of financial risks. But other states in every region continue to record improvement and are moving toward very low levels of risk.

The Overall Business Health Index, which tracks the financial health and associated risks of individual companies in the US through D&B proprietary measures, incorporates predictive scores such as the Delinquency Score, the Total Loss Predictor, and the Viability Rating to help clients monitor risks of individual companies in their portfolio. Taking these factors into account, the index tracks the aggregate US financial health by industry, company size, geography, and overall. Here’s a closer look.

Where We’ve Been, State by State

Since D&B’s last look at the geographic breakdown of the Business Health Index in January, 23 states have advanced while 27 states have declined. Most of the states that showed declines were in the South and West regions, while most of the improving states were in the Midwest region.

Gradual Deterioration Recorded in the West

Business health among companies in the West region fell 0.8% as an aggregate from December 2014. Aggregate regional deterioration aside, California was the weak pillar through April 2015, falling 0.6% from December 2014.

California outweighs all other states in terms of the number of business records in the region, accounting for nearly 51% of all businesses in the West. Due to the state’s size, its business weaknesses or strengths tend to impact the whole region. Specific weakness in the Total Loss Predictor and Viability subcomponents dragged the scores down in California. In addition, 10 out of 13 western states currently have a level above 50%, meaning that most businesses are well positioned and capitalized in that region.

A Decline Recorded in the South

At first glance, the South appears to have recorded little change in terms of financial risk since December 2014. The only state with a major difference between the two time periods was Florida. But it’s a big difference — the state’s Overall Business Health Index declined 4.3% — the largest drop of any state. Florida’s high financial risks signals trouble may lie ahead.

Florida’s problem, a high reliance on the real estate vertical, is similar to California’s. Florida’s results also strongly influence the total Business Health Index in the southern region.

In addition, Texas continues to struggle to break above the neutral line, despite above-trend GDP growth over the past few years and strong positive improvement in the Viability and the Delinquency score subcomponents. Elevated risks in the Total Loss Predictor component continue to hold the state back.

Texas and Florida aside, other southern states recorded large improvements over the prior four months, including North Carolina and Delaware.

Businesses in the Midwest Continue Dominance

The healthiest basket of companies continues to be in the Midwest — the only region to record overall growth from December 2014 to April 2015. The Midwest continues to rank the highest among all regions — it’s also the only region where all states were above the 50% “no change” threshold. Strong financial conditions, as recorded through the Overall Business Health Index, mean businesses are well positioned in this region to take advantage of healthy conditions, which may lead to above-average economic growth.

The Northeast Falls but Improves in Crucial Spots

Although businesses in the Northeast declined as an aggregate (-0.5%) since December 2014, financial risks improved 1% in Connecticut. The gain is significant as much of the recovery, postfinancial crisis, had not been recorded among businesses in the Nutmeg State. Despite the quick turnaround from December 2014, businesses have improved only 2.8% since December 2010 — that’s slower growth than the overall national average of 10.7%.

An additional bright spot is New Jersey, which also improved 0.4% since December 2014. It’s one of the highest weighted states in the Northeast region.

Out of all four regions, the Northeast remains the most fractured, with three states — Connecticut (45.2%), New Jersey (48.8%), and New York (48.9%) — still stubbornly recording a reading of below the 50% “no change” threshold. Nine states are currently above the 50% mark. Smaller states such as Maine continue to record very low levels of risk, coming in at 64.4% — the fifth-highest ranked state.

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