Although it will not come as a surprise to regular readers that, for various reasons, loan growth in the US has not only ground to a halt but, for the all important Commercial and Industrial Segment, has dropped at the fastest rate since the financial crisis, some (until recently) economic optimists, such as Bank of America’s Ethan Harris, are only now start to realize that the post-election “recovery” was a mirage.
A quick recap of where loan creation stood in the last week: according to the Fed’s H.8 statement, things continued to deteriorate, and C&I loans rose just 2.8% Y/Y, the worst reading since the start of the decade and on pace to print a negative number – traditionally associated with recessions – within the next four weeks, while total loans and leases rose by just 3.8% in the last week of March, less than half the stable 8% growth rate observed for much of 2014 and 2015.
Yet while zerohedge readers have been familiar with this chart for months, it appears to have been a surprise to BofA’s chief economist. However, in a report titled “Is soft the new hard data?”, Ethan Harris confirms that he has finally observed the sharp swoon lower and is not at all happy by it.
As he writes in his Friday weekly recap note, “this week saw some softness in hard data as auto sales and jobs growth declined sharply. While two observations do not make a trend, this occurrence nevertheless is noteworthy as on the one hand very positive sentiment indicators suggest activity should pick up…
… while on the other hand loan data suggests everybody is in wait-and-see mode pending details of fiscal stimulus (=tax reform) – which highlights the risk of softer hard economic data.”
A frustrated Harris then admits that such a sharp and protracted decline in loan creation has only happened twice before: the 2000 and 2008 recessions.
Then again, with tax reform seemingly dead, not even a formerly uber bullish Harris find much room for optimism…
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