Two releases, two borrowers
The H.8 release published on Friday by the Board of Governors of the Federal Reserve System puts bank credit at 19,753.4 billion dollars for the week ending July 29. Over the second quarter, commercial and industrial loans grew at a seasonally adjusted annual rate of 14.2 per cent while real estate loans grew 2.1 per cent. Loans and leases grew 7.9 per cent and deposits 9.0 per cent.[1]
The G.19 release published the same day shows the household side: consumer credit grew 2.6 per cent at an annual rate in the second quarter, with revolving credit at 3.9 per cent and nonrevolving credit at 2.1 per cent. The outstanding stock reached 5,166.9 billion dollars in June. The line that firms draw on grew at close to five times the pace of the line households draw on.[2]
The loan is made first and the deposit follows
When a commercial loan is drawn, the bank's balance sheet gains an asset and a liability at the same moment: the borrower's debt and the deposit in the borrower's account. Deposits growing 9.0 per cent while loans and leases grew 7.9 per cent is therefore unremarkable, since the two are sides of one transaction. The 14.2 per cent pace on the firm side says that corporate credit is what put new purchasing power into the system this quarter.[1]
The accounting identity stops there and says no more. Growth of 14.2 per cent does not mean the money drawn was spent; the credit could be refinanced debt, an undrawn facility taken down, or inventory finance, in which case it never becomes demand. Part of the deposit increase could equally be a portfolio shift out of money market funds and back into banks. The aggregated H.8 series do not settle that distinction.[1], [2]
At what lag does it show?
If the acceleration in firm credit is turning into effective demand, the trace shows up first in investment and hiring, with a lag of several quarters. The observable signal comes sooner: if commercial and industrial lending stays above the 6.3 per cent overall pace of bank credit in the next quarterly release, the quarter's acceleration stops being a single item. The 2.6 per cent on the household side stands as the comparison that shows one system serving two customers at two speeds.[1], [2]