If your economic forecast for the coming year embeds something like robust growth in consumer spending, last Friday's Federal Reserve report on consumer credit should probably give you pause.
At least some folks look at that picture and see a slow slog ahead. Calculated Risk sums up the concern:
"Consumer credit has declined for a record 11 straight months—and declined for 14 of the last 15 months and is now 4.8% below the peak in July 2008. It is difficult to get a robust recovery without an expansion of consumer credit—unless the recovery is built on business investment and exports (seems unlikely to be robust)."
At Angry Bear, the question is a little more pointed:
"Remind me again why all those banks were 'bailed out?' Wasn't it supposed to be to kick-start the economy again?"
Well, here's the thing. That consumer credit picture embeds both the supply of credit and the demand for credit. Though both tighter credit standards and weak loan demand are certainly at play, it is does seem that, at the moment, weak demand is the factor most responsible for slow loan growth in the United States. Recall, for example, this information from the Federal Reserve's January Senior Loan Officer Survey:
"The January survey indicated that commercial banks generally ceased tightening standards on many loan types in the fourth quarter of last year but have yet to unwind the considerable tightening that has occurred over the past two years. The net percentages of banks reporting tighter loan terms continued to trend lower. Banks reported that loan demand from both businesses and households weakened further, on net, over the survey period."
As regular readers of macroblog know, our own Atlanta Fed surveys (here and here) are indicating that soft customer demand, not credit access, is a significant story in business capital expenditure and expansion plans.
Of course, we don't really know whether credit availability will become a more significant problem when demand begins to recover. This uncertainty is behind what is the real back story at this critical point of the recovery. As we peer ahead, we essentially have two competing, and contradictory, economic histories as our guides. First, there is the statistical regularity that deep recessions in the United States have in the post-WWII period been reliably followed by rapid recoveries. But second, there is the Reinhart-Rogoff statistical regularity that recoveries from financial crises are slow and difficult.
A Wall Street Journal interview with Carmen Reinhart provides reasonable arguments as to why slow and painful is a sensible bet. On the other hand, one could argue that the advance fourth quarter gross domestic product figure is consistent with the sharp bounce-back scenario. (If you are looking for that argument, Brian Wesbury and Robert Stein oblige.)
One thing is certain. At least one history is going to be revised.
By Dave Altig, senior vice president and director of research at the Atlanta Fed