Lending activity increases during first summer month, but supply disruptions continue to strain economy

Lending activity at banks increased a bit across the country over the last several weeks, but supply-side disruptions became more widespread, continuing to vex manufacturing, construction and other areas, according to the Federal Reserve’s latest Beige Book, released Wednesday.

Reporting on financial conditions from the Fed’s 12 districts across the country reported before July 2, the latest Beige Book notes that the nation’s economy strengthened from late May to early this month, displaying moderate to robust growth. The report notes that economic sectors reporting above-average growth included transportation, travel and tourism, manufacturing, and nonfinancial services. Energy markets were a bit better, the report stated, but agriculture had mixed results.

“Supply-side disruptions became more widespread, including shortages of materials and labor, delivery delays, and low inventories of many consumer goods. Strained car inventories resulted in somewhat lower car sales despite steady demand, and home sales rose slightly despite limited supply,” the report states.

It asserts that “strained car inventories” resulted in lower car sales despite steady demand and that home sales rose slightly despite limited supply. Residential construction, the report stated, softened in several areas in response to rising costs, while commercial construction was mixed but up slightly on balance.

Regarding financial services, modest increases in loan demand were reported (although some reported robust borrowing), varying among loan products (growth in real estate lending, both commercial and home mortgages; softened demand for commercial loans, depending on the district). Quality among business loans improved as well, according to some. Strong competition for loans was reported in many districts.

Meanwhile, the deposit growth that accompanied stimulus payments over the last year appears to have slowed, significantly in some (not all) cases. Nevertheless, banks “remained flush with liquidity,” according to one district.

There are also some warning signs expressed: The Philadelphia district bank reported that one of its attorney contacts said clients were “anxious to begin collecting past-due rent and mortgage payments; several clients anticipate problems, including a surge of personal bankruptcies, when the moratoria on evictions and foreclosures are lifted.”

Full report: Beige Book – July 14, 2021