C&I loans grew by more than 4% in October, and were
higher by 15% compared with a year earlier,
according to the
Fed. As Richard Yamarone (director of economic research at
Argus Research) explains in
The
Traders Guide to Key Economic Indicators, higher C&I loans "are an
indication that businesses have a favorable economic outlook, and are willing to
build and expand their operations, and finance these plans via loaned monies."
True enough. Most of the time, that is. But in the current climate, higher
C&I loans may not be the bullish indicator they otherwise would be.
A recent paper from two Harvard economists advises that fear may be driving
the increase in commercial loan making of late ("Bank
Lending During the Financial Crisis of 2008"). Companies are increasingly
eager to have more cash on hand to fend off disaster, as opposed to investing
for growth. As such, a jump in C&I loans may be a sign of distress for the
time being. (Hat tip to Jon
Hilsenrath of the Wall Street Journal for pointing out this research.)
What about the rise in industrial production in October? The 1.3% jump looks
encouraging on its face. But that too is something of an illusion. A big chunk
of the rise was tied to the restarting refineries and drilling rigs in and
around the Gulf of Mexico after the shutdowns due to hurricanes Gustav and Ike.
Factoring out the storms and a strike at Boeing, industrial output would have
slipped by 0.7%, according to the Fed via
Bloomberg News.
In short, the upward blip in our economic index is just a blip. Our leading
index of economic indicators, which continued to fall in October, suggests as
much. So too does the red ink in most of the other economic indicators for
October. The temporary respite, it seems, will soon give way to additional
economic retrenching.
