Welcome to the Muddle Ages of the Recovery

Before diving into the analysis, a theme occurred to me the other day; more and more the economic data from the US is looking confused. There are some parts of the economy that are showing some relatively promising signs e.g. manufacturing, but then there are other parts (e.g. consumers, housing, etc) which say - "you know, this recovery... it's not that great, things are still hard!" And thus we are at the muddle ages of the post-great-recession recovery. And so, I was just looking at the US total bank assets statistics, and there were a few noteworthy standouts in the data:


The first chart is in someways an acknowledgment that there are a few bright patches in the US economy at present. Commercial and Industrial lending is one of the most cyclically sensitive sectors of lending, if you track it over a longer time period on a year on year percentage basis it shows a fairly persistent cyclical ebb and flow. Not to be calling the all clear, but the turning of the (still negative) year on year % change, and pick up in new lending in C&I loans is certainly an interesting data point in the context of my previous comments.


And that's the good part over, you can stop reading now if you're a blind optimist. The above chart is monthly consumer lending, with monthly percent change vs year on year percent change. It's tempting to call a turn on this one by looking at the course of the year on year percent change. But if you look beyond the data and think about what's going on, it's hard to make a case for any credible short term strength in this lending category.


In what is in some ways the antithesis of consumer lending, the US personal savings rate has reversed its decades long downward trend, which for the long term is a good thing. It is things like this that will help bring the coming of the economic renaissance (eventually)... if it can be sustained. But of course a sustained higher personal savings rate will also mean more consolidation of consumer lending, and lackluster short-term consumer spending (and then there's the government sector side of the savings coin...).


Oh and before we finish, real estate lending has continued its downward spiral and with the US housing market going no where fast, personal savings rates on the rise, unemployment still at highs, and consumer confidence still in the doldrums... it's like; "hmm, where to next on the real estate lending front?" It's hard to see any strong near-term drivers of a reversal in this sector; this is where the consolidation really needs to take place, not that there's really a choice. So, once again; welcome to the muddle ages.

Sources
Econ Grapher www.econgrapher.com
US Federal Reserve www.federalreserve.gov

Article source: http://www.econgrapher.com/18aug-muddleages.html

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).


Consumer
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.

Sources:
1. http://www.federalreserve.gov/
2. http://www.federalreserve.gov/
3. http://www.federalreserve.gov/
4. http://www.federalreserve.gov/
5. http://research.stlouisfed.org/fred2/data/PSAVERT.txt

Article Source: http://www.econgrapher.com/usloans4mar.html

US Bank Lending Update

The theme for this edition's top 5 graphs is US lending. I sourced some data from the US Federal Reserve on Aggregate lending by US commercial banks over the last 30-odd years, the data is seasonally adjusted, and is originally on a weekly basis. It is useful to look at this information to see how loan growth has unfolded over time; has it changed in composition? has it changed in patterns? how has it tracked recently?

It is particularly interesting to look at this information now for two reasons; 1. The recession we are in/were in (glass half empty/half full) was triggered by a banking crisis, and 2. A sure sign of a strengthening economy will be loan growth (businesses borrowing to invest, and/or consumers feeling more confident/having greater capacity take on new loans. It also says something about availability of credit, business cycles, composition of the economy, and key exposures for the banking sector.

1. US Aggregate Lending Over the Years
This chart shows total lending by US commercial banks over the past 37 years by components. Just by eyeballing this chart you can see that Real Estate loans have taken up a greater proportion of the loan book through time (particularly relative to commercial & industrial).


2. New Loans by Year (Past 20 Years)
Another version of the chart above; this one shows the value of new loans by year for the past 20 years. One of the greatest victims of the fallout has been business lending, while real estate lending has only contracted marginally.


3. Growth in Commercial & Industrial Lending
I decided to put the following three charts in, showing the year on year percentage change in total loans by category because it helps to see broader patterns and is a relative measure so inflation doesn't affect it that much.

For commercial & industrial, one observation is that there has been periods of negative growth in the past, but only this time around has it has pushed outside the usual range on both the up and down side.

4. Growth in Real Estate Lending
Yearly growth in real estate lending went negative for the first time in 37 years in 2009. You can see past cycles in there too - I leave it to you to make some more conclusions here...



5. Growth in Consumer Lending
This one is also interesting as in the past it sort of shows more of a smoother cycle or pattern, but in recent years has become a little more volatile. Also interesting is that the magnitude of loan growth recently is not historically high. Unsurprisingly consumer loan growth has turned negative. It's interesting too that consumer loans tend to get a lot of blame, but make up a lower proportion over time than real estate lending.


So there you have it, a pretty good snapshot of US commercial bank lending over time. This should be useful to add to your thinking about where the economy is now and where it will go from here. The key takeaways are probably 1. Real estate lending has clearly grown to dominate over time and contributed to key vulnerabilities in the banking sector; 2. Business lending suffered the most from the crisis in 2009; and 3. Consumer lending did not expand greater than usual in recent years.

Sources:
1.-5. US Federal Reserve http://www.federalreserve.gov/econresdata/releases/statisticsdata.htm

Article Source: http://econgrapher.site1.net.nz/usloans8jan.html

Top 5 Graphs of the week

Econ Grapher's Top 5 Graphs of the Week.
6 - September - 2009
This week the charts start with a strong focus on the US economy, with some clues of a potential bottoming out of job losses, a potential - but mayhaps misleading - pick up in economic activity, and some promising signs in the banking sector. Then the view goes to the global stage with a look at trade volumes, which appear to be bottoming out. Finally we look at the Australian economy - how the folks down under have waltzed their way through the crisis, relatively unscathed (or less scathed). One difference in this week's report is that the graphs are all from other sources - I'll look to have my own graphs back in the picture next week (when I, hopefully, have more time). Enjoy - and feel free to tell me if you agree, disagree, or especially if I'm missing something.

1. US Non Farm Payrolls
A recent data release, US non farm payrolls came in slightly better than expected (versus the Reuters poll for -225k) at -216k. So only 216k people out of a job in August. On a cumulative basis the change in non farm payrolls is approaching 0 for the decade as total non farm employment approaches year 2000 figures. However there is some respite in the numbers as the number of losses is clearly slowing - and it is forcing labour productivity up slightly. It is promising to see a bottoming out of job losses, but they are still that - losses, albeit unemployment is a lagging indicator, it wont really be a positive reading until we at least get back to changes closer to 0.


2. US ISM PMI
Institute of Supply Managers report on business data was also out in the past week. The figures were broadly speaking positive. They were "good" in that manufacturing appeared to be expanding, and new orders were positive. However this is likely to be driven more by two somewhat artificial factors than a more endemic recovery. The drivers of course are government stimulus i.e. cash for clunkers, and the inventory cycle i.e. inventory falling following a period of little restocking to the point that new orders need be placed [note most survey participants thought their customers needed more inventory]. This should pretty much signal a bit of a surge in economic activity - but it is unlikely to be sustainable. Another point to note is a rogue sign of inflation as the number of respondents reporting paying higher prices spiked up - this is an interesting dynamic in terms of US inflation; especially if juxtaposed with the extraordinary loose fiscal and monetary policy stances.


3. Bank lending
This graph comes from the recent OECD update to its world economic outlook. I thought this graph was quite fascinating - it shows that banks have begun to relax a little after an involuntary sphincter-like contraction around the peak of the crisis. This is encouraging as it indicates that there may be two things occurring; 1. banks may be taking a view that there are relatively better credit risks applying for loans 2. demand for (better quality) lending may be increasing. Of course loose monetary conditions may also be impelling banks to consider expanding the loan book. In any case this is encouraging and could be linked to a reactivation of the credit multiplier - and certainly is going to be much more supportive of a real economic recovery than the days where panic/liquidity squeeze/credit risk aversion were at a peak.


4. Exports
Having dwelled somewhat on US, its time to move toward a more global perspective. The below chart is also from the OECD report and shows what I have recently observed in trade numbers from a few different countries e.g. last week's report which feature Japanese exports... a tentative bottoming out or "stabilisation". In basic terms this means "it looks like it's stopped falling" - and for naysayers, guess what; this needs to happen before a recovery happens, so it is a positive sign. But the hard part is how and when (if?) it gets back to where it was and beyond. As previously mentioned it looks like the inventory cycle is starting to work through so I would expect the chart below to tick up a bit in the near term. What's not seen in this graph though is the components or the imbalances in trade and (hence) balance of payments. There are a few notable examples of persistently large current account surpluses/deficits, it's hard to foresee whether or not these balances may be catalysed to change on the other side of an eventual recovery.


5. Australian GDP
Australia released it's GDP stats for Q2 last week, beating forecasts with a QoQ GDP growth rate of 0.6%. Australia is one of the only developed countries to skip through the crisis with little harm. It only recorded 1 quarter (Q1 09) of negative growth in it's "recession". Indeed, it may even be the first developed economies to commence tightening of monetary policy. Some people are predicting the RBA will lift interest rates from 3% in October; I am one of them.

Until next week.

-Econ Grapher

Graph Sources:
1. Bureau of Labour Statistics (6/09/2009) http://www.bls.gov/web/ceshighlights.pdf
2. Bloomberg Report: (6/09/2009) http://bloomberg.econoday.com/byshoweventfull.asp?fid=438208&cust=bloomberg&year=2009#top
3. OECD WEO update: (6/09/2009) http://www.oecd.org/dataoecd/10/32/43615812.pdf
4. Ibid.: (6/09/2009) http://www.oecd.org/dataoecd/10/32/43615812.pdf
5. Australian Bureau of Statistics: (6/09/2009) http://www.abs.gov.au/AUSSTATS/abs@.nsf/ProductsbyReleaseDate/35F488B5F9F7D242CA256DF000814610?OpenDocument