Banks report modest loan growth – but note pace is slowing (and maybe mild recession risk)

Moderate to modest loan growth was reported by bankers among most Federal Reserve districts during the last quarter – but some reported slowing growth and others even talked of mild recession risk going forward, according to details of the latest report.

In its Beige Book (published eight times a year) for October, reports from bankers in nearly all of the various Federal Reserve districts relayed continued growth in consumer and commercial lending. However, while some of the districts said lending grew, it was noticeably slowing down, particularly in comparison to either the previous reporting period or a continuation of slowing growth that first became evident two years ago.

“Outstanding loan volumes at District banks grew by 3 percent in the third quarter relative to year-ago levels, which was a slight decrease from the second quarter of 2019,” the Federal Reserve Bank of St. Louis reported. “This slowdown continued the nearly steady downward trend in loan growth since the end of 2016. District growth remained slower than the national rate for the fourth consecutive quarter. Commercial and industrial lending maintained a positive growth rate, growing by 2 percent year over year, although growth has slowed significantly in this category over the past two quarters.”

The bank in Atlanta reported that total loan growth was positive but slowing, “especially for smaller community banks.” Meanwhile, the bank of Philadelphia reported that loans for home mortgages, commercial real estate loans, and other consumer loans were growing robustly. However, in the next sentence, the bank reported that “banking contacts noted ongoing uncertainty and more widespread talk of a (mild) recession risk in 2020. However, most indicated that they and their clients felt that the U.S. economy was fundamentally sound and that they were planning (cautiously) for ongoing growth next year.”

Meanwhile, other Federal Reserve banks reported that bankers were concerned about prolonged low interest rates. After reporting that loan demand and volumes picked up pace over the reporting period, led by particular strength in real estate lending, the Dallas Reserve Bank said that “bankers cite concerns regarding lower interest rates, the uncertain business climate, and political and trade tensions.”

Oct. 16, 2019 Federal Reserve Beige Book