Whether and when the US economy will slide into recession will depend on how the recent turmoil in the banking sector spills over to Main Street.
Less credit and stricter lending standards will make it harder for people to buy cars and homes, and for businesses to expand and invest. Heightened concerns about the banking system and a higher likelihood of a recession also threaten to make households more cautious about spending and companies more cautious about raising payrolls or making capital investments.
The economy has already shown some cracks from the Federal Reserve’s sharp rate hikes to stave off inflation. Two high-profile US bank failures, followed by a crisis of confidence in the Credit Suisse Group, have upset investors over concerns about the stability of the financial sector.
With conditions changing hourly, traditional economic data points — typically released monthly or quarterly with a delay — are less useful.
Here are some places to gauge the economic impact of the turmoil in the banking sector. However, it should be noted that some of these indicators have already fallen in recent months, which will make it even more difficult to decipher their meaning:
bank loan
Every Friday around 4:15 p.m., the Fed in Washington releases a slew of information about the assets and liabilities of the nation’s commercial banks. Statistics on consumer, real estate and commercial loans are all included and broken down into broader categories based on bank size.
The report, known as H.8, is being closely watched by economists and investors for insight into credit patterns and deposits at regional banks as well as the country’s largest banks.
The Senior Loan Officer Opinion Survey on Bank Lending Practices is a quarterly survey of up to 80 major domestic banks and 24 U.S. branches of foreign banks that also provides insight into lending standards and demand for and lending to businesses and households.
While not a high-frequency measure, the next report will be out in April – a welcome insight after the March turmoil. Evidence of tightening banks’ credit standards may raise concerns about the economic outlook.
consumer confidence
Consumer confidence is volatile and fragile, and while it’s by no means perfect, it can sometimes help to indicate changes in personal spending.
The first signs indicate that the upheavals in the banking sector are having an effect. A measurement by Penta and CivicScience showed that confidence in the US economy fell the most since June in the two weeks ending March 14.
The University of Michigan consumer survey in March, released Friday, was conducted from February 22 to March 15. According to the report, about 85% of the interviews were completed before the Silicon Valley bank collapsed. The data showed little impact on confidence, but the final index, released on March 31, may provide a more complete picture of consumers’ initial reaction to the bank failure. The data is published twice a month.
The Conference Board has scheduled a similar action for March 28.
Credit card expenses
An important way to find out if Americans are recording their spending is through credit card information.
The Bureau of Economic Analysis estimates spending on a variety of services and goods using daily payment card data. Unlike personal expense data, which is released monthly and with a significant delay, BEA data is typically updated weekly.
Several private sources also provide regular insight into consumer spending patterns, including Bank of America and Visa.
business mood
The Census Bureau’s Business Trends and Outlook Survey provides a way to gain timely insight into businesses across the economy. The survey is sent to some 200,000 companies every two weeks and contains figures on performance, turnover, employees and hours worked. The next release will cover the two weeks leading up to March 26.
The National Federation of Independent Business, a small business association, regularly surveys its members on topics such as lease plans, capital expenditures and the ease of obtaining credit. The NFIB released its latest results earlier this week, so the next reading won’t be for another month. The reports are published every second Tuesday of the month.
domestic behavior
The Household Pulse Survey, an experimental Census Bureau survey launched at the nadir of the pandemic, has become an important source of timely information on topics such as employment status, adequate nutrition and methods of meeting spending needs. Data is collected at two-week intervals from two weeks on, two weeks off.
OpenTable, a restaurant reservations platform, has daily data on reservations for both domestic and various US cities. While this may be volatile, a continued decline in bookings could indicate that Americans are pulling back on discretionary spending.
work availability
Companies tend to slow hiring and eventually freeze when demand falls to limit job losses. Although government data on job openings is released with a significant delay, many job sites provide much more up-to-date figures on the state of labor demand.
Indeed offers near real-time insight into job openings by country, state, city, and industry on its website. Even before last week’s events, job openings were already falling in many industries.
The decrease in temporary workers can also be an indication of entrepreneurial concerns about the future. The last step is the major layoffs, which can often be traced back to worker adjustment and retraining notices, known as WARN notices, issued before factory closures and other mass layoffs and before government intervention.
Bloomberg contributors Alex Tanzi, Augusta Saraiva and Ben Holland contributed to this report.
Source: LA Times