• The Fed’s April Senior Loan Officer survey showed more net tightening of credit conditions, but at a slower pace than in January. This is the second survey in a row showing a slower pace of tightening.
  • Credit supply thus remains a problem for the economy, but the survey reinforced our view that we have seen the worst of the growth impact from the credit crunch.
  • One notably bright spot in the survey is that demand for prime residential mortgages has moved into positive territory. The survey only asks about new originations and not about refinancing, which suggests that demand for homes is indeed improving.
  • Another welcome improvement is found in the question on banks’ willingness to lend money to consumers. The indicator has a good correlation with private consumption growth and is now at a level that indicates consumption growth around 2% y/y.

Details: The April edition of Fed’s Senior Loan Officer Survey covers the period from late January through the first three weeks of April. In general the survey showed that lending conditions continued to tighten, but less broadly than before. The main improvement was on the business side where a net 40% of banks reported tightening on commercial & industrial loans and 66% for commercial real estate loans compared to 64% and 79% in the January survey.

For consumer loans, improvement was seen in other consumer loans with the net fraction of tightening down to 47% from 58%. For credit card loans and residential mortgage loans, the net percentage tightening standards were roughly similar to the January survey, so no improvements here. However, it is encouraging that the banks’ willingness to lend money to consumers improved further as it suggests a marked pick-up in private consumption growth.

On the demand side, the picture is more mixed. One notably bright spot is a sharp improvement in the demand for prime residential mortgages. The survey only asks about new originations and not about refinancing. The improvement thus supports the signs of stabilisation in the housing market we have received from other sides such as home sales and some price indicators. For consumer loans a much smaller fraction reported sinking demand but for businesses, demand for lending appeared even weaker than in the January survey.

Assessment and outlook: This is the second survey in a row showing a slowing in the pace of credit tightening. Although lending standards are indeed tight and supply remains an issue for the economy, it nevertheless supports our view that the growth impact from the credit crunch has peaked.