Wednesday, March 3, 2010

Lending, Saving, and Consumption - A tale of US deleveraging...

Here's a brief update on where US bank lending is at. The theme of the day for this is basically deleveraging. Bank credit is on most counts still declining on a year on year % basis, a weekly net new loans basis, and on an absolute basis. It's still very much a story of no credit growth.

It's not a surprise either, lending conditions are still pretty harsh, there are still bank failures popping up, and consumers and businesses are still (but maybe to a lesser degree?) struggling - so finding it hard to obtain financing, or even service existing levels of financing.

To that end there's bound to be the influence of plain and simple write-offs. Bad loans = detractor to loan growth.

There's probably also an element of debt aversion in some cases, where people have been left underwater and truly stressed to the limit with asset price declines, employment loss and income pressures. IMF studies have even pointed to a period of higher savings rates following periods of high labour market and asset market volatility.

So it's also unsurprising and even positive to see that the US personal savings rate has recently spiked upwards (also included a chart on this below FYI). Positive because a sustained increase in the savings rate will support a more balanced and structural recovery - and due to wealth effects will see stronger future growth - but be ware it will also mean that in GDP growth numbers consumer spending will probably come through later in the process.

US Aggregate Lending
The below chart has total lending by US banks broken into C&I, real estate, Consumer, and other. The points to note are the previously mentioned declines in absolute values. It's also an interesting chart to look at in terms of the make up of total lending...

Commercial & Industrial
Business lending is still deeply in the negative, you can hardly even call the below stablising/bottoming out. But ultimately this is really the one you want to see turning up the most (given the previously touted thesis of the consumer-coming-last-recovery).

Real Estate
This one had been turning upward thanks to the impulse of the home buyer subsidies basically bringing a bit of demand forward and probably soaking up all the good credit risks. Now its back into declines (as are, coincidentally, house prices).

This is different from the much looked at consumer credit figures, this is consumer lending (higher frequency data from US Fed aggregate bank stats). This lines up to a T with the consumer deleveraging thesis...

US Personal Savings Rate
Thanks to "fred" we've got the US personal savings rate here showing a marked turnaround - we can really only hope that this trend continues for the US consumer. I mean really it's like the US consumer has collectively had a heart attack and survived - they've had the wake-up call and now they need to realise they have to change their habits. Like diet and exercise, a lift in the savings rate is just what the doctor ordered.

Live long and prosper US consumer, live long and prosper.


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