In the United States, the 12 month-change in commercial and industrial—C&I—loans has slowed to below 2% from 6% a year ago and around 10% two years ago. Including consumer and real-estate loans, the pace has slowed to around 3.5% from 7% a year ago.
This sharp slowing in lending has not been matched by a slowing in economic growth. This illustrates why we don’t focus on the Fed’s weekly report on bank assets and liabilities the way we focus on jobless claims. The Fed’s weekly data are timely, just like jobless claims, and revisions are generally insignificant. Also, over time, the major ups and downs in lending are usually mirrored directionally in economic activity. However, a slowdown in lending growth can also reflect a benign shift toward other sources of financing. Indeed, the sharp slowing in C&I lending recently appeared to reflect increased reliance on internal cashflow as the profits recession ended, and on the bond market as credit spreads declined. The slowing was not associated with significant tightening of lending standards.
More broadly, the relationship between growth in bank lending and growth in the economy is far from tight, as our second chart shows. Lending growth was outpacing GDP growth until the recent slowing. It was also outpacing total debt growth.
We would be less dismissive of a slowing in bank lending if it were associated with a tightening of lending standards and were being mirrored in data on spending. So far, however, that is not happening.