Consumers and businesses are starting to borrow more after hunkering down since the Great Recession, fueling a pickup in economic growth.
Bank loans and leases grew at a 7.7% annual rate in the second quarter, the sharpest increase since 2008, according to Federal Reserve data and SNL Financial.
The surge was largely driven by business loans, which jumped 12.6% at an annual rate. Consumer loans, meanwhile, rose at a solid 6% pace, up from 3.8% in the year-ago period.
Although commercial and industrial loans have been picking up for several years, “it’s working its way down to (small) and middle-market companies,” says banking analyst Jeff Harte of Sandler O’Neil. “You’re seeing more broad-based, robust demand.”
Similarly, consumers already were taking out more auto and student loans, but they’ve stepped up the volume recently and are making more credit card purchases after cutting back substantially following the downturn.
The momentum was reflected in banks’ second-quarter earnings the past two weeks. Wells Fargo said commercial loan balances were up 10% from the year-ago period.
Will Howle, head of retail banking at Citibank, said in an e-mail, “We’ve seen strong production across retail and small-business lending so far this year.” He added, “We’re optimistic about the rest of the year.”
JPMorgan Chase said commercial loans were up 9% from a year ago. Credit card loans grew for the first time in five years. New small-business loans soared 27% from the first quarter and 46% from a year ago.
In recent years, small businesses hesitated to boost capital spending, in part because of concerns about the Affordable Care Act and budget battles in Congress, says Alice Rodriguez, executive vice president of JPMorgan.
But concerns about the health care law are fading, and Congress passed a two-year budget deal earlier this year. Small businesses are “just focused on what’s going on around” them, she said. “Here’s a new market I want to go into, or I want to buy this piece of equipment or that building.”
Artie Parent, owner of AmericasPrinter.com in Buena Park, Calif., recently obtained a $1 million loan from Chase to buy two digital printers after contracting out digital printing services for years.
“Our base of revenue and customers is high enough,” he says, noting that sales grew 24% in the year ended June 30, up from 13% the previous year.
Government measures of consumer and small-business confidence also have improved recently. “In the wake of a really ugly recession, businesses have been really cautious,” Harte says. “That caution is lifting.”
July 20, 2014