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US economy stalls

In recent years, the US economy has been a beacon of economic growth set in a global sea of stagnation and depression.  But this may have come to an end according to Bob Bryan at Business Insider.

Citing the latest Senior Loan Officer Opinion Survey (SLOOS), Bryan notes:

“Banks have been tightening standards for both commercial and industrial (C&I) and commercial real estate (CRE) loans over the past few quarters and the latest data from the Senior Loan Officer Opinion Survey shows the most severe tightening in lending standards for these types of loans so far.”

The SLOOS figures indicate how easy/difficult it is for companies to take out new loans.  Historically, tightening only occurs as the economy goes into recession.  Against this, however, Bryan points to evidence that US banks continue to lend:

“Based on the actual records of banks’ balance sheets (the H.8 report), the size of the balance sheet at lending institutions indicates that credit is being extended.”

The worry is that the SLOOS figure is one of the few “forward looking” indicators.  The GDP, bank lending, sales and employment figures that are more commonly used as a measure of the health of the economy are all backward looking – we only get to see the situation as it was a month or a quarter ago.  So the fact that banks were lending freely even as recently as last month tells us nothing about what they are doing now.  The SLOOS figures are more indicative of what is happening today and what is likely to happen tomorrow.  And they are flashing a big red warning sign that easy borrowing in the USA is at an end.

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