- Businesses slowed their overall spending when the economy shutdown in March, but they had increased technology spending dramatically in both February and March, according to Cortera.
- Cortera, which tracks business-to-business transactions for small and mid-sized businesses, has a new data tracker, that records business transactions by industry and location.
- The tracker shows that about a third of bill payments to suppliers were late in March, up from about a quarter a year ago, and in some industries late payments are already foreshadowing more business failures.
As the economy shut down, businesses diverted spending to technology, while cutting back more broadly on other outlays including their payments to suppliers, according to data tracking business-to-business spending.
Even before the state shutdowns took effect in the second half of March, companies had boosted spending on technology. Overall spending slipped 2%, but IT spending doubled in March, after rising by 75% in February, compared to the year earlier.
Spending for everything from laptops to software, IT services and cabling was up 100% in March, presumably as companies shifted work from offices to homes and moved more of their own businesses online, according to data from Cortera.
Cortera tracks $1.5 trillion of the total $8 trillion in annual business-to-business interactions, from data provided by suppliers. Cortera collects data on small and mid-sized businesses.
"Businesses are paying a lot more slowly than they did a year ago," said Mark Zandi, chief economist at Moody's Analytics, which is a partner with Cortera. "Almost a third of B-to-B payments are late. That's up from roughly 25% a year ago. Now, it's 16 days late, compared to 11 days."
Zandi said the increase in late payments was a red flag for some industries, since high levels of delinquencies can be a signal of coming bankruptcies or failures.
Industries that were hit hard by the virus shutdowns showed an immediate jump in late payments in March data. Hotels and restaurant companies were late on more than 50% of their outstanding bills. Last March, they were late on 32% of payments to suppliers.
Companies in the art and entertainment and sporting events sectors, which includes everything from movie theaters to professional basketball games, also fell behind and are now late on more than half their payments. Previously, they were running late on just about a fifth of payments to suppliers.
"A lot of these small businesses will just fail," said Zandi. He said when an industry is late on more than half its bills, it sends a warning that companies are struggling with cash flow. "Yellow flares are going off. Much higher means you're in really deep trouble, and it's all about how much cash and financial resources you have."
Zandi added many small businesses are probably running low on cash by now, after five weeks. "I would expect failures to start to mount very quickly here."
Cortera, in conjunction with Moody's, has a new data tracker it says will be open to businesses and can help track the impact of the virus shutdowns on the economy, and should also register changes in activity as the economy reopens. The data base, located at Cortera.com/impact, provides data both by industry and location, at state and even county levels.
The data shows spending also fell off sharply in the states that were hot spots for coronavirus outbreaks. In Pennsylvania, spending fell by 18%, and in Michigan it was down about 14%. California businesses spent about 12% less, while those in New York cut back by a little over 5%.
Source: Cortera, Moody's Analytics
"There was a rush to buy certain things as there was a slowdown in other areas," said Jim Swift, CEO of Cortera.
One area that did well in March was trucking, which increased spending by 9%, as customers also increased spending on truck shipping by 9%.
"I think that's driven by food distribution and increased online distributions," Swift said. "The other spike we saw on the spending side was in spending on construction equipment which was up 39% in March." That includes items like generators, forklifts and bulldozers.