One of the current big debates in global financial markets is whether investors should believe ‘hard’ rather than ‘soft’ data, where the usually reliable business and consumer surveys have been suggesting strengthening in global growth momentum for some time now, while the economic data that feeds through into the Gross Domestic Product (GDP) numbers has not been following as would normally be expected. The Atlanta Federal Reserve’s GDPNow Forecast, which we have previously discussed here, is suggesting US GDP in Q1 is set to slump to an annualised growth rate of just +0.6%, which if correct would be the slowest US quarterly growth rate in three years.
An area of the US economy that is performing surprisingly poorly is loan growth. The post-Trump surge in business and consumer confidence, combined with a significant (initial) steepening in yield curves and the potential for banking sector deregulation, has not translated into greater demand for or supply of credit. In fact, quite the opposite.
The chart below plots commercial and industrial loan growth, loans and leases in bank credit, auto loans and real estate loan growth. Real estate loan growth is not as bad, but the trend is the same, and the limited data history suggests that the series may lag. Total lending growth rates are now in line with periods when we have previously seen negative US GDP growth (shaded areas), which is potentially indicative of higher US rates starting to bite.
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