Much has been made of the "sharp acceleration" in bank lending in the last few months promulgated by the status quo huggers that 'animal spirits are reviving' and, despite a collapse in equity market valuations for 'growth' stocks, that escape velocity growth and that so-longed-for surge in Capex is just around the corner. However, when put in context... when looked at over more than a few months, and when considered against the typical economic cycle... this is anything but sustainable and merely reflects on the inventory-stacking mal-investment debacle of Q4 that is now unwinding en masse as hoped for 'aggregate demand' shows no signs of appearing.
Submitted by Lance Roberts of STA Wealth Management,
In a recent posting on Business Insider, reference was made to a chart by Liz Ann Sonders discussing a recent surge in bank loans and leases as a sign of impending economic recovery.
"Over the past 15 weeks there has been a sharp acceleration in bank lending, which is now growing at an 8.6% annual rate, and could suggest animal spirits are reviving," she said."
The problem is that the chart is completely out of context. Is this spurt in activity historically relevant? Have such increases previously led to surges in economic activity or inflation? Or, is this activity just an anomaly that will rectify itself in the months ahead?
While Ms. Sonders certainly presents an interesting point, by taking the data out of context it potentially leads to a misdiagnosis of the issue. The chart below is a long term view of the bank loan and lease data as compared to both the economy and the velocity of money as an indicator of potential inflationary pressures.
What we see is, as would be expected, that businesses respond to changes in the economy on a lagged basis. Business owners, and individuals, do not generally jump out to take on credit until they are sure the economy is recovering and vice-versa.
The recent uptick corresponds with the economic push in the last quarter of 2013. It is very likely, given the recent economic weakness both domestically and internationally, that the recent surge in activity may well be very short lived.