Welcome to Charts That Count.
We often hear about the bifurcated US economy,
with an energised consumer and a more subdued
corporate or industrial sector.
But sometimes that distinction is
hard to see in the data, outside of sentiment surveys.
Here is another way to look at it.
This is a chart of growth in loans on the balance
sheet of US banks.
The chart shows two different kinds of loans.
The yellow line here represents unsecured consumer loans.
The green line, on the other hand,
is loans to companies or commercial and industrial
loans.
You'll notice a couple of things in this chart.
First, you do see the overall slowdown
in the growth in the American economy,
as reflected in declining loan demand,
right around the end of 2018 and into 2019.
But the two kinds of loans on banks' balance sheets
reflect that slowdown in quite different ways.
In consumer loans or credit card loans,
there is a noticeable decline.
But in 2019, the decline has stabilised at around four
per cent growth, greater than the growth
in the overall economy, in fact.
US consumers are still confident enough
to put debt on their credit card.
And banks are confident enough in those consumers
to let them do that.
With corporate loans, on the other hand,
the decline has been more precipitous and deeper.
We see that now the rate of growth
of loans to corporations on bank balance sheets in America
is practically zero.
Now it may be that the lack of growth
in banks' corporate lending reflects
more than just the economy.
It may be that companies are going other places
to borrow money, such as the bond market,
rather than going to banks.
It may also mean that banks are selling on some loans
that they originate.
However, this trend is so dramatic
that demand for loans for corporations
has to be part of the story.
And here is a question.
In recent quarters, as this chart reflects,
earnings growth at banks has been
driven by consumer banking, which is still growing
at that reasonable rate.
There has been no growth drive or less growth
driven on the corporate side.
If banks are making up for the lack of corporate activity
by extending risky loans to consumers,
the fact is, we may not find that out for a couple of years.
The economy is strong.
Unemployment is low.
And if consumers are taking risky loans,
it's going to take a while to figure that out.