Business loans offer clues to where the economy is recovering
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The Federal Reserve published its latest Beige Book this week, which is the Fed’s summary of how the economy is doing in each of the Fed’s 12 regional bank districts, on topics including employment, consumer spending, real estate, manufacturing and so on. The reports are anecdotal, so they don’t always agree. And one of those areas where the Fed’s regional banks are seeing different results is in loans to businesses.
A lot of businesses have been thinking twice about borrowing because interest rates are rising.
“Hey, you know, I could have borrowed this at 4.5%, that made sense. But if I have to pay 6.5%, it may be a little tighter,” explained Dominik Mjartan, CEO of Optus Bank in South Carolina.
That’s in the Fed’s Richmond, Virginia, district, which found that commercial loan demand has been modestly slowing.
Mjartan said he’s seeing lending slow down in home construction and commercial real estate.
“There’s a reluctance from investors to buy office space, just because of the anticipation of future stress,” he said.
The Chicago Fed said loan demand is down in its district too.
At La Salle State Bank, about 90 miles southwest of Chicago, senior loan officer Chris Duncan said many of his clients are nervous about next year’s economy.
“Even though things haven’t gotten terribly dire yet, they’re holding off on doing much until there’s a little bit more certainty in the outlook,” Duncan said.
Meanwhile, other Federal Reserve banks said loan demand is up, including the banks of Cleveland, Atlanta and San Francisco.
Nathan Rogge runs Friendly Hills Bank in Southern California and said some clients are taking out loans now because rates are rising.
“On longer, fixed-rate opportunities, bigger pieces of equipment, real estate, they’re wanting to take advantage of rates before they move more,” Rogge said.
Rogge said other businesses — manufacturers and wholesalers — are borrowing to expand.
“They feel like things have stabilized,” he said. “They see a clearer direction for the company. Their clients are feeling more optimistic. And so everything just seems to be pushing forward.”
Demand for loans might differ by region because local economies have been recovering at different speeds.
For instance, Charlie Dougherty, an economist with Wells Fargo, said a lot of big cities have been slower to recover.
On the other hand?
“You look at Salt Lake City, or Boise, or Phoenix — those areas have grown at a very robust rate, and continue to do so,” he said.
Overall, he said the Fed reports are a sign that the growing economy has a lot of soft patches.
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