Fresh data from the Federal Reserve April Senior Loan Officer Survey and Consumer Credit report for March paint an encouraging picture of consumer and business credit conditions. When looked at as a whole, improved lending conditions should help support a stronger growth rate for the economy in the quarters ahead. So it is with great happiness that I write this week on the emerging signs that banks are becoming more eager to lend and consumers and businesses are becoming more eager to borrow.
Banks have been reporting lackluster demand in most lending categories since the “Great Recession” ended, but that is starting to change. In the April senior loan officer survey, banks reported stronger demand for commercial and industrial loans and commercial real estate lending. On the consumer side, banks reported rising demand for auto and credit card loans as well. Looking ahead, the banks self-report that the outlook for both prime and sub-prime credit card loan growth is better than last year.
Outside of residential mortgages, where credit standards tightened (especially for non-traditional mortgages), banks appear to be loosening credit standards for consumer loans and are increasing their willingness to lend to consumers.
In short, both consumer and business credit conditions are improving. Importantly, demand for credit is growing for commercial and industrial, commercial real estate, auto and credit card loans. At the same time, banks are further easing their credit standards in all of these loan categories as consumer and business balance sheets heal. I take this as a positive signal for the sustainability of stronger economic growth ahead. While the tightening of mortgage credit standards and weaker demand for mortgages in the second quarter is somewhat discouraging, it may just be a temporary shift as banks and consumers try to adjust to the weaker housing affordability environment and new Qualified Mortgage (QM) rule change that occurred in the first quarter of this year.
To find out more, check out this week’s Bank of the West US Outlook Report, May 9, 2014
Tags: economy