Americans are finding it easier to borrow from banks, supporting consumer spending and business investment and helping fuel employment just as U.S. government budget cuts start to take hold.
Data from the Federal Reserve show banks are more willing to lend and their customers are seeking more credit as both groups gain confidence in the economic outlook. That is one reason economists at UBS Securities LLC, who use measures of credit in their employment models, are forecasting payrolls will climb by an average of 200,000 a month in 2013, up from 181,000 last year.
“There’s a continuing loosening of credit standards, and more importantly, demand for credit is up,” said Sam Coffin, an economist for UBS in Stamford, Connecticut, the second-best forecaster of the unemployment rate over the past two years, according to Bloomberg rankings. “All that is good for growth and jobs.”
Easier access to low-cost financing will sustain auto and home sales, spurring employment in manufacturing and construction. It also means entrepreneurs will have the funds to put up outlets such as electronics stores and bagel shops and hire the staff to run them, providing a cushion for the labor market after across-the-board spending cuts to U.S. defense and domestic programs, known as sequestration, began on March 1.
Among those who are borrowing is Ryan Spath, who got a $150,000 four-year loan last month at an interest rate of 5% that he will use to open a Cellairis store in Boise, Idaho.
“It’s a make-or-break thing when you’re a business and you can’t secure financing,” said Spath, 29. “I want to think the credit market is improving.”
Spath and two business partners employ about 45 people at 12 Cellairis franchise locations in Oregon and Washington, mainly kiosks at malls that sell accessories for wireless devices. The Boise shop will be their first full store from which they will offer a wider range of products and do repairs.
After making little progress with bigger lenders, Spath was able to get financing from the Community Business Bank of Georgia in Cumming, near Cellairis’s head office. Spath will manage the store and hire a few people this year, aiming for an August opening. The location will eventually employ eight to 12 people, he said.
The situation is different in the U.K., where Lloyds Banking Group Plc and Banco Santander SA led a drop in U.K. lending in the fourth quarter as the Bank of England said its credit-boosting program will “take time” to feed through to loan growth.
Stocks fell on concern changes in China’s government policy may slow growth and hurt the global recovery. China’s Cabinet on March 1 called for higher down payments and interest rates for second-home mortgages in some cities. The Standard & Poor’s 500 Index retreated 0.1% at 10:42 a.m. in New York, and the the MSCI All-Country World Index lost 0.2%.
The pace of employment in the U.S. was probably little changed last month, according to a survey of economists ahead of Labor Department figures on March 8. Payrolls climbed by 160,000, the median forecast in the Bloomberg survey, after a 157,000 gain the prior month. The jobless rate is projected to hold at 7.9%.
Easier credit may stimulate bigger gains in hiring even if President Barack Obama and Congress fail to reach a compromise on replacing $1.2 trillion of budget cuts over the next nine years.
A net 19.1% of banks reported increasing demand for commercial and industrial loans in the fourth quarter of last year, compared with a net 6.2% that reported a drop in the prior period, according to the Fed’s survey of senior loan officers issued last month.
“Aggressive competition” among lenders prompted banks to ease standards or terms, the central bank said. Demand strengthened for business loans, prime residential mortgages, commercial real estate lending and auto loans, according to the survey conducted from Dec. 27 to Jan. 15.
Household debt climbed by $31 billion, or 0.3%, to $11.3 trillion in the fourth quarter as student and auto loans rose along with credit-card balances, according to a Federal Reserve Bank of New York report last week. It was the first pickup in borrowing in seven quarters and only the second since 2008.
Kristin Jakiel, 29, and her husband Nicholas Jakiel, 30, bought a red 2012 Chevy Cruz LT from Tom Henry Chevrolet in Bakerstown, Pennsylvania, on Feb. 23. The couple got an $18,944 auto loan from Ally Financial Inc. after qualifying for a $123,000 30-year mortgage at 3.8% to buy a new town home in Canonsburg, Pennsylvania, in July.
“I was a little bit worried” about being able to get financing, said Kristin Jakiel, a school teacher who drives about 50 miles to work every day and wanted to trade in her 2009 Chevy Cobalt that was approaching the end of the 70,000 mile warranty. The loan processor “had me approved by the next day. We made the decision to buy the car on Wednesday, and we had a new car on Saturday.”
Cars and light trucks sold at a 15.3 million annualized rate in February, exceeding the median estimate of economists surveyed by Bloomberg. Automakers led by General Motors Co. and Ford Motor Co. predict demand for cars and trucks, on pace for the best year since 2007, will remain resilient.
“It’s starting to happen,” said Bill Hampel, chief economist for the Credit Union National Association in Washington. “There are people who want to lend, and people who want to borrow. It’s been getting stronger in the past six months or so. It just takes time to get away from the level of fear we saw during the crisis.”
The thawing in financing is also playing a role in lifting the index of leading economic indicators. The gauge of the economic outlook for the next three to six months got a 0.14 percentage-point boost from its credit component in January, matching the second-highest gain since 2004, according to data from the Conference Board, a New York-based research group.
The credit component is comprised of six measures that assess changes in liquidity, stress in the financial system and the risk appetite or willingness of lenders.
“We’re slowly seeing credit availability expand,” said Kathy Bostjancic, director of macroeconomic analysis for the Conference Board. “As borrowing increases, economic activity increases, and that creates more jobs.”
Ken Greene, 52, will hire 50 to 75 workers by mid-year for three bakeries he’s opening in Rochester, New York, after securing a $9 million, seven-year loan at a rate that was 5 percentage points lower than his previous financing, he said. Earlier, he had to refinance a commercial loan on a yearly basis since 2008, when the financial crisis struck.
“Banks were so skittish before, but with the economy improving it worked out,” said Greene, who employs about 500 people across 33 Bruegger’s Bagels locations in Albany, Syracuse and Rochester. “When people spend more, it translates into more sales and improves the ability to borrow and create more jobs.”
Deborah Olsen, who with husband Gregg Olsen, 60, operates 35 Miracle Ear hearing aid stores, is diversifying as credit becomes more accessible. A 10-year, $498,800 loan is going toward her first Massage Envy clinic in Anchorage, Alaska. She has hired 15 workers and plans to double that this year.
“I’m so excited,” said Olsen, 55, adding that about 50 customers have already made appointments ahead of the March 16 opening, thanks to a sign on the storefront and advertising on Facebook, the social-media website. “The loan has certainly made things easier.”