Commercial and industrial loans appear to be on the rise again. For the first time since the Great Recession slammed the economy, lending is increasing, according to Federal Reserve data. Banks are also loosening their lending standards, according to the latest Fed survey. It all adds up to evidence that another variable in the business cycle is no longer creating a drag on the forces of economic recovery. It’s far from a sea change, but even a marginal shift is good news because it adds brings one more critical data point back from the dark side.
The signs of thawing in the big lending freeze are still tentative, but there’s a case for cautious optimism. Commercial and industrial loans at large banks are showing signs of rising for the first time in two years, as the chart below shows. It’s hardly a roaring surge, but the shift seems to mark a break with free fall that prevailed since late-2008. At the very least, it looks like the lending business is no longer contracting. If so, there’s one less negative force weighing on economic momentum.
In support of thinking positively is the Fed’s latest survey of bank loan officers, which finds that roughly 12% of banks in the polling had eased their lending standards for commercial and industrial loans. Yes, an iceberg melts slowly, but it’s the general trend that’s important for looking forward.
“If lending activity picks up, you can bet that corporate spending will too,” writes Pimco money manager Anthony Crescenzi in his 2008 book Investing From the Top Down: A Macro Approach to Capital Markets.
It’s too early to make definitive statements about lending and what it implies for the broader economy, but the uptick in C&I loans inspires thinking about the implications. “We’re starting to see loan demand turn up, and that’s a very important indication that the financial system is healing and the commercial banking system is getting stronger,” Michael Darda, chief economist and chief market strategist for MKM Partners, tells Bloomberg. “When that happens you usually see a step up in job creation as well.”
Yes, it’s still mostly a jobless recovery, and that makes the economic expansion relatively vulnerable. But if lending is no longer falling like a rock and maybe, just maybe, it’s even starting to trend higher, the recovery is a bit less vulnerable.