NAHB Looks at Recent Commercial, Industrial Loan Patterns, Unemployment

Feb. 8, 2018

Lending standards on commercial and industrial (C&I) loans to large and medium-sized firms with annual sales at or above $50 million continued to ease on net in January, according to a recent analysis of Federal Reserve Board information by the National Association of Home Builders (NAHB).

“The continued easing in standards on C&I loans increase the stock of loans, which in turns fuels job creation,” Michael Neal of NAHB said.

The net easing on C&I loans eased by 10% over the prior three months ending in late December/early January, reflecting the 15.7% of survey respondents that eased standards, the NAHB found. Meanwhile, 5.7% of senior loan officers surveyed said they tightened standards over the prior quarter.

In general, an acceleration in net lending standards on C&I loans portends a low likelihood of a recession in the near future, and also that the stock of these business loans should continue to grow, Neal said. However, the growth in the stock of bank-held C&I loans slowed in the third quarter of 2017 to an annual rate of 1.3%, from 4.5% in the second quarter.

“The recent steep rise in interest rates may curtail growth in the very near term,” he said.

On the employment front, the unemployment rate since the recent recession has fallen back to its historically low level, while the employment-to-population ratio remains below previous peaks, NAHB said. “This suggests that more recent recessions have caused a kind of damage to the employment-to-population ratio such that the ratio cannot return to the high prior to the recession, a characteristic not convincingly observed in the unemployment rate over the same period,” Neal said. “This matters for housing because it indicates that while the unemployment rate is low and the number of jobs is growing, the number of people with jobs is a smaller portion of the population.”

– Nicholas Stern, managing editor

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