The impact of the “credit crunch” on the economy remains uncertain but some clues are provided by the Federal Reserve’s October survey of bank lending officers, published yesterday. Key points include:
- The net percentage of banks tightening mortgage lending standards rose to the highest level since this series started in 1990.
- The net percentage reporting increased willingness to make consumer installment loans fell below zero for the first time since 2001. Negative readings are unusual outside recessions.
- The net percentage tightening standards on commercial and industrial loans rose to a four-year high but remains well below levels reached before five of the last six recessions – see chart.
Overall, the survey suggests credit tightening will be a significant drag on fourth-quarter growth but has yet to become severe enough to prompt recession-inducing corporate retrenchment. Surging energy costs are unhelpful but my recession probability model is still indicating a less-than-50% chance of a contraction.
