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Banks in the U.S. are lending the most since the recession ended in June 2009, supporting an economy weighed down by 8.3 percent unemployment.
Borrowing by consumers and businesses rose in the week ending July 25 to $7.1 trillion, within 2.9 percent of its October 2008 peak, according to Federal Reserve data. New lending for autos jumped to $134.3 billion in the first four months of the year, up 56 percent from the same period in 2009, according to credit bureau Equifax Inc.
The increase in lending may prevent the economy from slowing further after growth cooled to a 1.5 percent annual pace of growth in the second quarter. While the Fed recently moved closer to expanding its record stimulus, the figures on credit indicate that 43 months of near-zero interest rates may finally be giving the economy the jolt it needs, said Jim Paulsen, who helps oversee $320 billion as chief investment strategist at Wells Capital Management in Minneapolis.
“Many pieces of the credit-creation process are starting to work again,” Paulsen said. “Banks are lending, people are borrowing, housing prices are going up and a sense of normality is returning.”
Among the reasons for the pickup in lending: Households, whose spending makes up 70 percent of the economy, have cut debt since the 2008-09 credit crisis, while banks have increased liquidity and bolstered capital buffers. Credit requirements for buyers of new and used cars have eased.
U.S. banks “continued to report having eased their lending standards across most loan types over the past three months,” the Fed said last week in Washington in its quarterly survey of senior loan officers. Consumer lending standards for car financing and credit card loans eased, while standards for other consumer borrowing were about unchanged, the survey said.
Banks “reported stronger demand for auto loans,” and an increase in demand for credit card loans, according to the survey.
The economy needs sustained credit growth to begin a cycle of spending and hiring and to reverse the slowdown, said Steven Blitz, chief economist at New York-based ITG Investment Research Inc. Economic growth has slowed from a 4.1 percent pace in the final quarter of last year as consumers and companies pulled back on spending.
“Borrowing is the best indicator out there for future growth,” Blitz said. “If you see the demand to borrow grow, and banks willing to lend to meet that demand, you’ll grow your national income faster.”
Fed officials recently left unchanged their statement that economic conditions would likely warrant holding the benchmark interest rate target near zero at least through late 2014. •