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Crescenzi: 'Green Shoots' But Not Much More


Today the Federal Reserve released the results of its quarterly survey of senior loan officers on bank lending practices. The results show that while banks continued to tighten their lending standards, the degree of tightening lessened in the most recent period compared to the past two quarters and in particular the fourth quarter of 2008 when the tightening of lending standards was severe from an historical perspective.

Charts on the correlation between the percentage of banks willing to make consumer loans and both employment and personal consumption show a strong relationship dating back to the 1960s. To wit, it is therefore notable that the willingness to lend to consumers was less bad for a second quarter in a row. For example, in the latest survey a net of about 5% of banks reported a decreased willingness to make consumer installment loans, down from 15% in January and 45% three months earlier.

Although this key metric is well off its worst level, it is still at a level rarely seen from an historical perspective. The improvement is the basis for believing in "green shoots" but hardly a basis for believing there will be a sustained recovery in the economy and markets. When that case is made, the second leg of the rally in risk assets will occur, but this is probably a ways off.

The green shoots idea probably has legs for a bit longer, but there is only so far that risk assets can go in the absence of a sustained, self-reinforcing expansion. Recent gains have to take hold and lead to a virtuous cycle of increases in production, income, and spending, but there will be plenty of obstacles along the way.

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Tony Crescenzi

Tony Crescenzi is the Chief Bond Market Strategist at Miller Tabak + Co., LLC where he advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. Crescenzi makes regular appearances on financial television stations such as CNBC and Bloomberg, and is frequently quoted across the news media. He is also the author of the forthcoming book, "Investing from the Top Down," "The Strategic Bond Investor," and co-author of the 1200-page book "The Money Market."Crescenzi is a contributor to"