We Now Know "Who Hit The Brakes" As Loan Creation Crashes To Six Year Low

Tyler Durden's picture

The wheels are falling off the US bank loan market.

After we first showed in early March the steep drop in bank loan creation for both Commercial and Industrial, auto and total loans - all traditionally leading indicators to economic contraction and recession as business and consumers halt spending, even with borrowed money - numerous other analysts and pundits have attempted to explain, and justify why one should not be particularly concerned about this tumbling indicator. Most notable among them Goldman, who in late March "explained" that there was nothing ominous about the crash in loan creation, and instead it was just a function of a base effect, and a shift from loan to corporate bond issuance.

Two months later we can confirm that not only was Goldman wrong, but so are all the Pollyannas who assert there is nothing troubling about the ongoing collapse in loan creation.

According to the latest Fed data, the all-important C&I loan growth contraction has not only continued, but over the past two months, another 50% has been chopped off, and what in early March was a 4.0% annual growth is now barely positive, down to just 2.0%, and set to turn negative in just a few weeks. This was the lowest growth rate since May 2011, right around the time the Fed was about to launch QE2.

At the same time, total loan growth has likewise continued to decline, and as of the second week of May was down to 3.8%, the weakest overall loan creation in three years.

Another loan category that has seen a dramatic slowdown since last September, when Ford's CEO aptly predicted that "sales have reached a plateau."  Since then auto loan growth has been slashed by more than 50% and at this runrate, is set to turn negative some time in late 2017.  Needless to say, that would wreak even further havoc on the US car market.

For a while, despite numerous attempts at explanation, there was no definitive theory why this dramatic slowdown was taking place. It even prompted the WSJ to inquire "who hit the brakes?"

Well, after the latest Fed Senior Loan Officer Survey, we may have the answer.

First, recall that in late April we showed another very troubling trend: consumer credit card default rate as tracked by S&P/Experian Bankcard had surged to the highest level since June 2013, suggesting that contrary to reports otherwise, the US consumer is increasingly unwell.

A quick look at the latest Fed Senior Loan officer survey revealed even more disturbing trends. According to the report, "banks reported tightening most credit policies on Commercial Real Estate loans over the past year.... On balance, banks reported weaker demand for CRE loans in the first quarter." Even more troubling was the continued drop in demand for C&I loans among small, medium and large corporations, with "inquiries for C&I lines of credit remained basically unchanged" staying at a modestly depressed rate.

This stark admission that in addition to declining bank supply due to tighter standard (i.e., worries about further losses), there was less demand by businesses and consumers for loans, has explained once and for all the ongoing collapse in commercial bank loan creation, both total, C&I and auto. Of the two, the declining demand for loans businesses, is by far the most concerning aspect of an economy that is supposedly growing, and where companies should be willing to take out new credit to fund expansion (instead of merely issuing bonds to buyback their stock).

Digging deeper into the Fed report confirmed the worst-case scenario: the collapse in loan growth was almost entirely due to a sharp, recent consumer revulsion toward credit, with reduced level of consumer card and auto loan demand in the quarter. The decline took place despite "visibly softer" underwriting standards for cards which surprised some analysts as not creating incremental demand;

And while C&I loans are tumbling, demand for credit cards is now running at the lowest level in the 5 years the survey has provided credit- card-only data for consumer demand.

With all that, we can now close the book on the WSJ's previously unanswered question of "who hit the breaks?" The answer: the US consumer, the driver behind 70% of US GDP, officially tapped out.

In fact, it was almost as if US consumers were hit by a perfect storm of adverse events in late 2016 and early 2017, just as GDP was on the verge of its first pre-recessionary contraction in years, and just as the S&P rose to new all time highs to distract from what is emerging as an imminent US recession.

Here's the bottom line: unless there is a sharp rebound in loan growth in the next 3-6 months - whether due to greater demand or easier supply - this most accurate of leading economic indicators guarantees that a recession is now inevitable. How accurate: every single time C&I loan peaked, a US recession follow. We doubt this time will be different.

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Iconoclast421's picture



You don't need to loan money when you can just print it to buy up stocks

DownWithYogaPants's picture

Another point of view is that the voters according to the Federal Reserve "voted wrong". Now we must pay for putting Trump in office.

I say fuckem.  I voted for a wrench to be tossed into the gears.  I'll vote that way until something serious changes.

johngaltfla's picture

The reason there is not higher demand for C&I loans is not the risk or tighter credit standards, that's a myth created to cover the banker's asses.

The truth is that businesses are not putting any risk capital out on the cutting board for fear their nuts will get cut off by a sudden downturn generated by the two asshole political parties and President WTF. For example, if you have a $50 million company with a little over 200 employees and the potential to double, do you risk it by believing that Obamacare gets repealed, tax reform occurs, and regulatory reform accelerates?

Not me. Fuck that. This is looking more like May 1929, not May 1994.

DieselChadron's picture

seen this one before.  trump will approve a ginormous budget without a vote.. or maybe jan goes negative rates.  nothing to see here.  the only force working to change it exists on the other side of the world right now.  nothing we can do about it at this point.

J J Pettigrew's picture

Are the Goldman Sachs people ok?  Please tell me...

chubbyjjfong's picture

God I hope so. I really pray that they make it through these desparate time.

Ol Man's picture

Exactly.  Have any modern journalists actually graduated 7th grade English?  I am constantly amazed at the misspellings and misuse of words in current journalism. 

At least they will be easy to compete with, in the aftermath of what is to come...

Hikikomori's picture

English is worth learning!

ReasonForLife's picture

So if someone made an honest mistake, you jump on the "spelling bee star" bandwagon and consider th editor deficient in the english language?  What if I consider you deficient in Wisdom, so you pick on little pointless spelling mistakes, as you have nothing greater to contribut to the discussion?

DownWithYogaPants's picture

Give it a rest dude.  The guy made a valid point about urinalists.  They are of the lowest intellect and drive possible.  Worse yet their ethics.  They rent out to the deep state these days almost exclusively.

If he were nitpicking a single person like you I could get your Grammar NAZI point.  But he's not.  He's talking about a broad observation of the quality of their work in their chosen trade.

ReasonForLife's picture

You get a star! Well written!  ;)

MisterMousePotato's picture

Do you know how refreshing and unusual - noble, in fact - it is to see one admit when one is wrong? I'm impressed.

. . . _ _ _ . . .'s picture

Exactly. Find one article on ZH that does not contain an egregious error in spelling or syntax. I dare anyone.

To be fair, there are not many sites who still employ professional proof-readers... but they should.

It hurts credibility.

Curiously_Crazy's picture

My only pet peeve in terms of grammar is that the world 'who' seems to have entirely disappeared from common usage online. It's always "whom" this and "whom" that as though the fuckers writing think they have discovered some trendy new word. They don't seem to care that it's almost always used incorrectly. Nobody really used whom a decade ago except in rare circumstances but now it's 'the done thing'.

. . . _ _ _ . . .'s picture

I've been hearing the, "...the guy that did that thing..." on the news since I was young (er).

I'm even starting to hear, "...the company who did that thing..."


Starting a sentence with, "So, ..." is the new trend. It is used to lead or manage a conversational point. It is supposed to give credence to the statement following.

DownWithYogaPants's picture

You have to keep in mind computers are writing many of the stories these days but you would think they would spell correctly.

. . . _ _ _ . . .'s picture

A computer would not know the difference between 'brake' and 'break.' An editor would.


ReasonForLife's picture

As if you've never made a typo or spelling mistake.  This teacher's pet vocabulary class star, nit picking mindset is exactly the kind of neurosis that uses the opportunity to highlight how important one is (an attempt to mask childhood feelings of inferiority) at the mistake of another.  It's as if by correcting someone's spelling error, suddenly, you discover the true meaning of what was written.  What a bunch of Boolsheet! :) 

pauhana's picture

I hope you just forgot to say "sarc/on."

ReasonForLife's picture

Hope can be as addictive as opium.

11b40's picture

Well thanks for the pop psychology lesson, but it is much more important than that.  There are reasons that English is the world's language.  Every word has meaning, and needs to be used properly, regardless if one is too lazy, undisciplined, or too mentally weak to learn.  When precision is required, no other language can nail down the facts like English.

Sure, we all make typos, but sloppy writing too often indicates sloppy thinking.  The worst examples of misused words I see now is on various "news' programs, especially when adjectives are inserted for propaganda's sake.  It's really hard to watch the slant being put "news" stories.

armageddon addahere's picture

Journalists were never hired for their spelling ability. That is what they have editors and rewrite men for, at least they used to. If they are this sloppy about using spell check imagine what their fact checking is like.

iamerican4's picture

Wheels have "BRAKES," not "breaks."

Handful of Dust's picture


Good pick up. Your higherd!

Proofreder's picture

Just goes to prove that the weekend Tyler is capable of not only editing a head (corrected an hour or so after publication) and perhaps reads the comments - but still no proofreading to the screed before hitting that big SEND button to the aether.  

Tough break, T.; getting caught - always one more error ...

buzzsaw99's picture

hit the breaks, lulz

Handful of Dust's picture
Houston, We Have A Problem: How Dwindling Oil Prices Hurt Houston's Commercial Real Estate Market (March 2016)


The low price of gas at the pump may be making American drivers happy, but the plummeting price of crude ? which slid more than 70% since June 2014 ? has been bad news for oil industry hotspots like Houston, where the energy industry downturn has had a significant impact on the local economy and commercial real estate, particularly the office sector.


The plunge has led office vacancies in the so-called Energy Capital of the World to more than double from the final quarter of 2014 to the end of last year, leaving some 8 million square feet of space available as office-leasing activity declined more than 50%, according to Colliers. Most of that space had previously been leased to energy companies.




The article is from march, 2016 but my friend who lives in Katy, west of Houston says there are LOTS of empty office buildings along I-10, many more then last year. Remember, I-10 west of Houston is the so-called, "Energy Corridor." Some prof at UH says energy and related industries are 50% or more of the Houston area GDP.

Seasmoke's picture

I'm doing my part. Credit cards are unsecured debt. My favorite kind.

karenm's picture

Whatever your business or job entails, this will come to your doorstep very soon.

HRH Feant2's picture

Did they not read ZHs article from yesterday? About 44% of the US population not having $400 cash? Apparently not.

Payday loan center, the next big thing.

Dilluminati's picture

The way I did the math in the other article buying a car is similar to spending .60/100 

No way..  

Short Humanity, Retail, and Detroit.

whatamaroon's picture

I've hunkered down for 2 reasons; No repeal of obamacare and no reductions in tax rates.

media_man's picture

This should push the Dow all the way to 25k. No interest rate hike & QE4EVA

yogibear's picture

James BullTard said no rate increase in June.

Expect more QE's

QE4,QE5.....QE7 until the dollar blows up.

Magooo's picture

Who is Seth Rich.

DaBard51's picture

"Breaks v "Brakes"...

Some things, even robo-spellcheckers, remedy they cannot.

Sapience, required it must  be, hmmmm....

Homonyms, pesky they are, Tyler-san...


When nine hundred years old you become, look this good you will not.

Mena Arkansas's picture

You see this all the time in Craigslist car ads - e.g. disk breaks.

I immediately disregard such ads as a poster who is too stupid to spell correctly is also likely too stupid to have performed the scheduled maintenance.

whatamaroon's picture

"You mean wiping disks like with a cloth?"

DaBard51's picture

Fixed.  Attentive you are, Tylers... thanks.



When nine hundred years old you become, look this good you will not.

. . . _ _ _ . . .'s picture

Spellcheck is no sustitute for proof-reading.

More automation replacing talent, I'm afraid.