Inflation, Credit Conditions, & an Initial Claims Mystery

Week in Review: May 8-12

This week started with a highly anticipated release of the Senior Loan Officer Opinion Survey (typing that dealt a killing blow to my inner child), gave us new inflation data on Wednesday and Thursday, and ended with an update on consumer sentiment. Oh, and there’s something weird going on with unemployment claims data (Thursday), and that has everything to do with Massachusetts.

Monday

Senior Loan Officer Opinion Survey

The SLOOS (by far the best economic data acronym) tells us about banks’ lending practices. That’s more important than normal given the whole banking situation, but this survey was distributed from March 27 to April 7, so it reflects the SVB and Signature Bank failures in early March but not the First Republic failure in late April.

To no one’s surprise, lending standards tightened for the second straight quarter. About half of banks tightened lending standards for loans to commercial and industrial firms, and virtually no banks (one out of 123 responses) eased standards for commercial and industrial loans. A little more than 60% of banks reported moderately or substantially weaker demand for C&I loans in the first quarter.

About 74% of banks tightened standards for construction loans (none eased), and 72% reported weaker demand for construction loans. The figures were similar for loans secured by nonresidential and multifamily properties.

The most important reasons for tightening lending standards were less favorable or more uncertain economic outlook (97%), reduced tolerance for risk (72%), deterioration in customers’ collateral values (69%), and increased concerns about your bank’s funding costs (61%).

So credit conditions tightened in the first quarter, and almost certainly continued to tighten in April due to the First Republic failure. About half of banks expect their standards to continue to tighten over the rest of 2023, while the other half expects them to remain basically unchanged.

Final note: looking through the survey tables for SLOOS is a little clunky. This PDF of charts is better, in my opinion. 

Gas Prices

Gas prices fell for the third straight week. At $3.644/gallon, prices are at their lowest level in over a month and about $0.78 lower than at the same time last year.

TSA Checkpoint Travel Numbers

Travel numbers for the week ending 5/9/2023 remained about 1% below 2019 levels.

Tuesday

NFIB Small Business Optimism Index

This measure of small business sentiment declined in April. The quality of labor was the single biggest problem for 24% of businesses, and that overtook inflation (23%) as the most common response. Small business owners still plan to hire, but they’re overall pretty downbeat about the outlook.

Wednesday

Consumer Price Index