Lending activity data has not improved to start 2023.

Commercial bank lending is a key driver of real economic growth. Historically, banks tend to tighten lending practices in periods of economic weakness. There is a reflexive and causal aspect to these setups where lending slows because the economy is slowing, and the economy slows more because lending is slowing. If commercial bank lending declines, we would expect to see a broader deceleration in economic activity.

The Senior Loan Officer Opinion Survey (SLOOS) from 4Q22 showed a noteworthy acceleration in the number of banks tightening standards on loans. Recently, we have seen more evidence of this from monthly data in the NFIB Small Business Survey for March and Dallas Fed Banking Conditions Survey for April. Additionally, the loans and leases portion of the weekly Federal Reserve report on Assets and Liabilities of Commercial Banks in the United States (H.8) has stalled out so far in 2023.

While we wait a few more weeks for the 1Q23 update on SLOOS data, we can review where it was at the end of 4Q22 and look at the other indicators mentioned above. The tables below provide context around the absolute level of lending practices and the pace at which these measures have moved over the last few quarters. The levels as of the most recent release were still below where they were immediately following the onset of the pandemic and lower than the worst of the Great Financial Crisis. However, on a y/y basis several categories increased by nearly the same amount as 2Q20 and 2008. The rapid change we observed are likely the result of weaker economic outlooks and could be a headwind to overall economic activity moving forward.

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Source: Federal Reserve, Macrobond.

Since the SLOOS data was released, we have seen other measures of credit conditions move in a similar direction. Within the NFIB Small Business Survey for March, the availability of loans compared to three months ago declined four points to -9, its lowest level in a decade and the largest m/m decline since 2002. Expected credit conditions in the next three months declined three points to -9, matching the print from December last year which was the lowest since 2013.

Source: National Federation of Independent Business, Macrobond. 

The Federal Reserve Bank of Dallas Banking Conditions Survey has a shorter history, but the recent trend lines up with what we have seen elsewhere. Total loan volume declined to -18.3 in April, its lowest reading since the pandemic lows. Underneath that, only commercial and industrial loan volume improved in the last update but remained negative. All other loans, commercial real estate, residential real estate, and consumer loans declined from the prior period.

Source: Federal Reserve Bank of Dallas, Macrobond. 

Another way we can track lending activity is through the H.8 report from the Federal Reserve. Total loans and leases have declined by roughly $45 billion to $12.06 trillion from $12.10 trillion from the last week in 2022. The main takeaway here is that, with 4Q22 SLOOS data in mind, we have seen lending activity flatline to start the year.

Source: Federal Reserve, Macrobond. 

Tighter lending standards and the resulting slowdown in credit growth will likely lead to a further slowdown in broader economic data.

 

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