Loan growth at banks in the United States slowed in July, the US Federal Reserve said on Friday, snapping a 10-month streak of acceleration.
Bankers that spoke to Reuters recently cited a combination of factors for the slowdown, including growing worries about the US recovery, Europe’s turmoil, concerns about federal spending and uncertainty about tax laws after the presidential election.
US bank loans grew by 5.0 per cent in July from the same month last year to $7.1 trillion -slower than the 5.3 per cent growth in June 2012.
A month does not necessarily indicate a trend, but many analysts expect loan growth to continue slowing in coming months amid other signs of a decelerating economy.
The manufacturing sector contracted in July for the second straight month after expanding steadily for nearly three years. And gross domestic product grew an anemic 1.5 per cent in the second quarter, seasonally adjusted and annualized, compared with 2 per cent in the first quarter and 4.1 per cent in the fourth quarter.
For banks, loan growth had been one of the few positives this year. In July, big banks posted second-quarter results marred by weak revenue and depressed trading profits, but helped by loan growth.
“The slowing economy may be taking its toll on the one real engine of ... loan growth that the banks were enjoying during the first several months of the year,” Christopher Mutascio, an analyst at brokerage Stifel Nicolaus, wrote in a note earlier this week. Most major banks have launched cost-cutting programs.
Even companies taking on new loans are cautious. Take MacLean-Fogg Co, a Chicago-area company that makes auto parts and electrical transmission equipment.
The nearly 90-year-old company took out a $10 million loan late last year to finance a machine that will help it make gears for 8-and 9-speed transmissions, which are growing in popularity because of their increased fuel efficiency.
The company has orders in hand from customers so it is confident it will be able to pay back the loan, said MacLean-Fogg Chief Financial Officer George Cook. But the company is growing carefully because it sees risks ahead.
“Our business is generally strong, but we can feel it a little bit on the edges slipping,” said Cook. “We can feel a little softness coming.” Companies such as MacLean-Fogg have been among the strongest sources of loan growth this year, Fed data show. Loans to commercial and industrial borrowers grew 14.2 per cent in July compared with the same month last year. Commercial and residential real estate loans, in contrast, grew just 0.9 per cent.
The industries that are producing loan growth include manufacturing, healthcare, technology and green energy, bankers said. Businesses connected to housing or construction continue to struggle.
US loans began growing in September, on a year-over-year basis. (Looking at loan growth compared with the same month a year earlier strips out any impact from seasonal differences in loan demand). September’s growth was a mild 0.15 per cent, but that figure steadily ramped up, accelerating dramatically in February.
Some of the recent loan growth has been the result of US banks taking market share away from weaker European banks hoarding capital to meet new regulatory requirements. In the July Senior Loan Officer Survey conducted by the Federal Reserve, a “sizable fraction” of US banks reported that business had increased due to decreased competition from European banks.
At a time when the economic and fiscal outlook is uncertain, growth is possible, but it is going to be a grind, said Perry Pelos, head of commercial banking at Wells Fargo & Co.
“We’ve shown in the past few years that we can grow in a very difficult environment, but it means we’ll have to take share from other people. You have to hustle more.