US loan supply improving but demand still weak
Simon Ward
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More US banks eased credit standards on commercial and industrial (C&I) lending than tightened in the three months to October, according to the latest Federal Reserve senior loan officer survey. The net easing percentage leads economic activity and the latest reading is consistent with solid US expansion in early 2011, a prospect also signalled by recent monetary trends – see first chart and previous post. (The chart shows an average of separate series covering lending to larger and small firms.)
Further evidence of improving loan supply is provided by the October National Federation of Independent Business survey, showing a fall in the net percentage of small firms describing credit as hard to get to its lowest level since August 2008 – second chart.
While supply is easing, loan demand remains weak, reflecting ample corporate free cash flow and more attractive borrowing opportunities for larger companies in credit markets. The net percentage of banks reporting stronger C&I loan demand fell back in October and remains in negative territory, although far above last year's low and at a level historically consistent with stable or modestly-expanding lending – third and fourth charts.
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