The US economy keeps chugging along, and it appears that it’s adding even more fuel.
Wells Fargo, the largest US bank by market capitalisation, released second quarter earnings Friday and while the company reported profits right in line with expectations, underneath the hood there was some great news for the economy.
In nearly every category, Wells added to its loan portfolio, indicating a strong desire for credit from both businesses and households.
The most encouraging segment is probably commercial and industrial loans (C&I), which are given to businesses that are looking to make large investments. According to Wells, their C&I loans grew by $39.0 billion, or 13%, from the year before. Commercial real estate loans also increased by $10.7 billion, or 8% (which may or may not be a good thing).
Average Americans also grew their loans from Wells. Credit card loans grew by $3.0 billion, or 10%; automobile loans were up $4.1 billion, or 7%; and mortgages increased $9.3 billion, or 3%.
The growth in C&I is particularly encouraging given that recent data from the Federal Reserve’s Senior Loan Officers Survey reported that loan officers who actually issue credit reported their standards were tightening. Tighter standards usually presage a decline in the growth of C&I loans and eventually a slowing in investments by businesses, so the counter-factual from Wells is welcome relief.
Additionally, households have been reluctant to take on more debt since the end of the recession, which leads to lacklustre consumption and suppresses GDP growth. Thus, the increasing number of people buying houses, cars, and goods on their credit cards may be a positive contribution to the economy and indicates that the households feel good about their financial situation.
To be fair, this is just one bank so it’s more a positive sign than the total picture, but Wells is the third-largest bank by total assets and has the second-largest loan portfolio so growth in loans from the bank is notable.