Slow, mixed growth expected in credit market

CHARLOTT. The US credit market is likely to see slower growth this year, but businesses remain solid despite fears of a recession.

“I’m getting more and more feedback from business contacts that 2023 looks like a year of growth, but here it’s a messy type of growth,” said Martin Lavelle, senior business economist at Federal Reserve Bank of Chicago, at Equipment Finance Connect in Charlotte on Tuesday. “Not much ‘oh my gosh the sky is falling’ but I just plan to get through this year and then see where we are in 2024.”

Lavel also pointed to Fed Survey of Senior Loan Officer Opinions on Bank Lending Practices (SLOOS) as an indicator of potential economic activity.

Source: Federal Reserve Board/Haver Analytics.

“This does not mean that economic activity is slowing or even declining in some sectors, and that is what the survey of senior Fed loan officers is saying,” Lavelle said. “This is a survey of financial institutions that asks a number of questions, but one of them is whether the demand for loans in various sectors is strengthening or weakening in the future.”

“Now we see, especially with the most recent fourth quarter 2022 data, that more financial institutions are reporting weaker demand for these various instruments than higher demand. Mortgage lending is in the lead, and given the rise in mortgage rates, commercial real estate is the second weakest, and [commercial and industrial] really just went negative.”

Lavelle said that while rising rates lead to a decrease in demand for loans, customers are not using credit lines.

“Talking to contacts, activity is slowing down, demand is slowing down, but also that troubled customers or troubled customers are not growing… no one is using their lines of credit,” Lavelle said. “They are slowing down, but this does not affect the financial difficulties of these borrowers, so once again: slower growth, maybe a slight weakness, but not a disaster.”

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