Tuesday, September 2, 2008

US credit crunch? Where?

Today, the Organisation for Economic Co-operation and Development (OECD) released its interim assessment for the G7 Outlook. The G7 countries are in for a ride for the rest of 2008, driven by the following: Financial market problems, housing downturns, and high commodity prices.

The OECD’s revised 2008 growth forecast for the G7 is the following:
- US’s growth projected was increased 0.6% to 1.8% over the year.
- Japan’s growth projection was reduced 0.5% to 1.2%.
- Eurozone’s growth projection was reduced 0.4% to 1.3%.
- Germany, France, and Italy are expected to grow just 1.5%, 1.0%, and 0.1%, respectively.
- UK’s growth projection was reduced to 0.6% to 1.2%; the IMF also reduced its projection for UK growth.
- Canada’s growth projection was reduced 0.4% to 0.8%.
- Overall, the G7 growth rate remains unchanged at 1.4%.

The OECD cites tightening bank lending standards as one significant sources of the change in the G7 Outlook. For the US, they reference the Fed’s Senior Loan Officer Opinion Survey, which reported tighter lending standards for all types of loans, consumer, real estate, and commercial in both Q1 and Q2 2008. I believe that this survey, which is overly cited as indicating dire credit conditions, does not illustrate the true nature of the credit system.

Relative to their 2000-2008 averages, the 3-month average of total annual loan growth is consistent with its historical average, 9%, commercial and industrial loans are growing almost four times their average (5%), and consumer loans are fifty percent higher than their average (6%). Real estate loans are a big drag, which are growing 6% below their average (12%), but the point to hammer here is that they are still growing.

The classic tale of a credit crunch is a situation where those with appropriate loan qualifications, and under different economic circumstances, are unable to get loans. In the last two recessions, a credit crunch was more evident, where all loan types were being curtailed. The amazing thing here is that in spite of $500-$600 billion in losses in the financial system to day related to the sub-prime blowout, loan growth is still positive. In fact, C&I loan growth is the highest that it has been since 1985.

I just don’t see a credit crunch here in the US. What about you?

Please leave comments. Best, Rebecca Wilder


  1. The "flip" comment is, "Haven't looked." Have circled the wagons ready to fire at will and keeping my powder dry. Any more phrases that need to be cited? The volatility is still too much to see anything clearly so one assumes the worst without really looking at the numbers. Thanks for pointing out the reality, again. We need to see it!!

  2. Forgot to wish you a good Labor(less) Day.

  3. Hi Jane!

    Unfortunately, I am all labor today. Trying to write our Global Economic Forecast - not looking pretty! Happy Labor Day to you - not wearing white, are ya?