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Economic Fuel and Jobs! - August 7, 2018

Loans make the world go 'round

On Monday, the Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices was released to the Heads of Research at the Reserve Banks. Though we are not among the addressees, as loans are the fuel that makes the economic machine hum, we like to listen in.

For businesses, standards were broadly easy and demand relatively good. Commercial and industrial loan standards and terms eased for firms of all sizes while real estate standards were unchanged. For demand, small businesses were at the vanguard, with banks reporting stronger demand for C&I loans. While demand was caused by the reasons one might expect, i.e. inventory increases, equipment, M&A financing, etc..., banks who reported a decrease in demand cited a couple of interesting reasons. First, borrowing may have shifted to other lenders, implying increased competition, which was further indicated by many banks reporting that they decreased the spread between loan rates and their own cost of funds. Second, some companies may no longer need loans as their financing needs are being met by “internally generated funds”. Going straight to the horse’s mouth, the NFIB SBOI survey from last month further supported the view that loans were easy to come by, with Loan Availability the best it has been since 2004.

For households, standards for real estate and auto loans were “little changed” while “a moderate share of banks tightened standards on credit card loans.”

Additionally, “[B]anks reported weaker demand across all surveyed RRE [residential real estate] loan categories” while “Demand for auto, credit card, and other consumer loans reportedly was little changed on balance.”

This data hints at a potential weakening in home sales, and while Revolving Consumer Credit grew 4.0% YoY, the month on month numbers were negative for a second time this year.

More Jobs!

Today marked the release of the JOLTS Job Openings data, which once again came in above the reported unemployment numbers, indicating there were more jobs available than unemployed workers (however the skills overlap is another matter). The NFIB Jobs Report data from last Thursday supported this rosy outlook, with a record percentage of small business owners reporting job openings that they were unable to fill. The survey may also shed some light on the housing market,

“Reports of job openings were most frequent in construction (57 percent) where labor shortages are clearly restricting the construction of new homes and apartments.”

Time will tell if this labor tightness will spur further increases in wages and or becomes a drag on production.

P.S. While we might add “BoJ Rumors” to Mark Twain’s triumvirate of “Lies, Damned Lies, and Statistics”, a Reuters article released Monday whispered that there may be a change in the winds at the BoJ, even mentioning that plans to raise rates had been on the table earlier this year. What a change that would be!