GOLDMAN: We Have Confirmation That Business Spending Is Picking Up

Electric phosphate smelting furnace factory worker
Electric phosphate smelting furnace used in the making of elemental phosphorus in a TVA chemical plant in the Muscle Shoals area, Alabama. Wikimedia Commons

Since the recovery began, many economists have been telling us that U.S. businesses will crank up spending as they replace their ageing equipment and expand their operations.

Unfortunately, that hasn’t really been happening as companies have either hoarded their cash or returned it to shareholders in the forms of dividends and buybacks.

But more and more economists are pointing to this one chart that suggests things have been picking up pretty aggressively since the beginning of the year.

It’s of loan growth, which has been accelerating.

“The 13-week annualized growth rate increased to a new post-crisis high of 9.4% in the week ended March 19, before ticking down to a still-strong 8.1% in the week ended March 26, the latest available data,” said Goldman Sachs Kris Dawsey, citing the Federal Reserve’s weekly release on commercial bank assets and liabilities. “After adjusting for the effect of accounting changes in 2010, these growth rates are the strongest in the post-crisis period. Although most non-financial corporate investment in the United States is financed with internally generated funds and capital market borrowing, the state of bank lending is still important to track, in particular for small and medium-sized businesses that cannot directly access capital markets.”

Charles Schwab’s Liz Ann Sonders brought this to our attention earlier this week, saying this was a sign of “animal spirits” reviving.

“Despite these caveats with regard to the value of C&I lending as a leading indicator, we would certainly prefer to see strong lending growth rather than weak growth, if only as a further confirmation that business spending has firmed relative to the rate seen in the first half of last year,” said Dawsey.

Dawsey expects us to hear more about all of this as companies announce their Q1 financial result in the coming weeks.