Michael Lewis’ new book – The Undoing Project – should be the starting point for any projections about commercial finance in Mississippi during 2017.  The book underscores our defective reasoning process that routinely (1) underestimates uncertainty, (2) places too much weight on limited observations, and (3) ignores biases.  With those caveats in mind, we guesstimate the outlook for commercial finance in Mississippi.

»» The State of the State of Mississippi. “We’re a poor state with all the issues that come with poverty,” noted State Economist Dr. Darrin Webb at Millsaps College’s 2016 Fall Economic Forum.  Still, the economist predicts Mississippi will end 2016 with its first back-to-back year gains in real growth (0.7 percent and 1.5 percent in 2015 and 2016, respectively) since 2008, with estimated growth of 1.7 percent in 2017.   Though modest, the growth surpasses the negative numbers Mississippi posted in 2009, 2011, 2013 and 2014.

More importantly, Mississippi’s pro-development policies are starting to pay off. Area Development Magazine, the trade publication for economic developers and site selection consultants, lists Mississippi in the Top 10 States for Doing Business.  This ranking reflects the work of Governor Phil Bryant, the MDA, and other state leaders to aggressively pursue economic development opportunities, including recently landing Continental Tires’ $1.45 billion tire manufacturing plant.  There is a direct correlation between Mississippi’s economic future and the MDA’s success in recruiting industry.

»» Interest Rates. In 2017, debt will be more expensive. Rising interest rates are not particularly undesirable (any more than the recent low rates were desirable).  While lower interest rates undoubtedly benefitted many borrowers, the depressed rates exemplified a depressed economy.  A return to more traditional interest rates and curves bodes well for growth.  Higher rates result in increased savings revenue and greater profit for financial institutions.

»» Construction.  New construction projects beget construction loans.  In December 2016, the Associated General Contractors of America ranked Mississippi 38th among the states for change in construction employment for the prior 12 months, with a modest 0.4 percent decline and 46,800 employed.  Surrounding states employed 78,200 (Alabama), 49,300 (Arkansas), 146,700 (Louisiana) and 125,300 (Tennessee) in construction jobs.

»» Government Regulation.  The 800-pound federal gorilla put on even more weight over the last decade.  While new regulations may be good for bureaucrats and attorneys, the opposite is true for the bottom lines of tax-paying, employee-hiring businesses.  The new federal administration promises a business-friendly climate and strict diet of regulations. Every federally regulated Mississippi business stands to benefit.

A new president can revise and revoke executive orders, and new department heads can change policies; however, revocation or amendment of promulgated regulations will not happen overnight.  Still, the Department of Labor’s new overtime rules (on hold pursuant to a federal court injunction) will likely die.  A new Solicitor General and Department of Justice will withdraw positions in various pending federal proceedings, thus mooting some anti-business controversies.  The beleaguered energy sector will find new life as a new secretary takes the reins of the Energy Department.

The mere prospect of a changed regulatory climate has helped push certain industry sector stocks to multi-year highs.  The banking industry is a prime example, due to expectations of a modified Dodd-Frank Wall Street Reform and Consumer Protection Act and change in direction at the supernumerary supervisory agencies.

»» Consolidation.   Businesses are under immense pressure to quickly deliver better products at lower prices.  Bigger seems better and the price is consolidation.  Again, the banking industry is front and center, as evidenced by mergers and acquisitions over the last several years. Unfortunately, consolidation often moves ownership out of state.

»» Healthcare.  The new administration may want to repeal the oxymoronic Affordable Care Act, but no law will change the demographics.   The aging and ailing population dictates a massive investment.  Healthcare is a growth industry here as in the rest of the country.  Mississippi is leading the way in telemedicine and other health services such as assisted living facilities.

»» Financings & Refinances.  But for refinances, the amount of financing in Mississippi since the fall of 2008 would have been a dribble.  The declining rates lowered debt service and extended maturities, in a massive loan shell game. With rates rising, refinances will stall and commercial loan growth will require new projects and ventures.   There is optimism of an improved business climate, but whether it materializes may depend on consumer and industry confidence.

»» NMTCs.  New Market Tax Credits, a bi-partisan federal program, helps turn difficult projects into reality. The 2016 awards list, released in November, includes four Mississippi-based Community Development Entities (CDE) receiving a combined $185 million of tax credit authority.

»» BP Deepwater Horizon.  The State of Mississippi stands to receive a total of $2.174 billion over the next several years from the Deepwater Horizon settlement.  These funds will be invested in environmental restoration, economic development and research.  State leaders have said the majority of these dollars should be spent in South Mississippi, which could see a boom in development as a result.

»» The World.   The world changed on September 11, 2001, and hasn’t fully recovered.  The economic downside in the U.S. is real but limited.  Unlike many countries, we can sustain ourselves.  Yet, sustaining is not growth.  Mississippi lags the national economy and the future of the national economy is cautiously and optimistically lukewarm.

Conclusion & Summary.   Businesses face a variety of mixed signals and tough decisions.  There is some reason to be mildly encouraged about an upswing in commercial finance in 2017, but just mildly.  Uncertainty is the norm and periodic reevaluation is in order.

Our advice?  Don’t bet the company.  Stress test your financial statements.  Turn your bank into an advisor and heed your lender’s advice about risk and market conditions.  Consider risk-adverse derivatives, including an interest rate swap or cap.  Seek third-party advice from associations, boards, CPAs and business attorneys.  Measure twice and cut once.

» Ben Williams and Molly Jeffcoat Moody  are attorneys at Watkins & Eager PLLC. Ben and Molly are recognized by Chambers USA and Best Lawyers in America.   Ben was selected as Best Lawyer’s 2017 Mergers & Acquisitions Lawyer of the Year in Jackson.  Learn more at watkinseager.com.