The latest Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board notes reduced lending demand from the past survey. Overall borrowing standards for commercial and industrial loans improved slightly in July from April, but the growth of loan demand declined significantly.
For instance, among large and middle-market firms with annual sales of $50 million or more, 23.8 percent of loan officers report moderately stronger lending demand compared with 15.9 percent suggesting that it is moderately weaker. This suggests that just 7.9 percent on net feel that lending demand has strengthened. Last quarter, the net was 31 percent.
Similarly, for small firms with annual sales of less than $50 million, net demand dropped from 21.8 percent in April to zero in July. To be fair, around 60 percent of loan officers suggested that loan demand was about the same. Still, this represents a sizable weakening of loan demand, reversing the improvements seen in the first two quarters of the year.
Given slower economic growth seen in other measures, this is probably not a surprise. In fact, reduced levels of activity were cited as important factors to explain the drop in demand. This includes lower needs for customer inventory financing, investments in plant and equipment, and merger or acquisition needs.
Chad Moutray is chief economist, National Association of Manufacturers.
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