The number of people in the U.S. who process credit transactions is rebounding, boosted by an increase in lending to governments, businesses and consumers.
Credit-market borrowing in all domestic nonfinancial sectors grew at a seasonally-adjusted annual rate of $2.5 trillion in the three months ended Dec. 31, 2012, the biggest rise in five years, according to data in the Federal Reserve’s Flow of Funds Report. This includes lending to households, businesses, corporations and the government -- or overall debt in the economy, said Dean Maki, chief U.S. economist in New York at Barclays Plc.
The increase has “positive implications” for U.S. expansion and points to “brighter skies ahead” for employment in related industries, said Jack Ablin, who helps oversee about $66 billion of assets as chief investment officer of BMO Private Bank in Chicago. “History has shown that credit expansion requires more manpower.”
The number of people working in credit intermediation -- positions such as commercial bankers, mortgage and loan brokers, and credit-card issuers -- rose 1.7 percent in February from a year ago to about 2.6 million, Labor Department figures show, after reaching the highest level in almost four years the previous month.
“During the last 30 years, the ebbs and flows of our economy have been closely tied to growth in credit expansion, so having credit grow over the last few years is certainly encouraging,” Ablin said.
Borrowing by businesses, including loans and corporate-bond issuance, accounts for about 42 percent of the fourth quarter’s gains, Fed figures show. There’s been “good growth” in this segment, as lenders are “cautiously wading back in” to extend credit to companies again, said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.
Household borrowing -- which includes mortgages, loans and credit cards -- represented about 12 percent of new lending in the three months ended Dec. 31, down from about 27 percent in the fourth quarter of 2007, when the 18-month recession began, Fed data show. Home mortgages probably will drive hiring in credit intermediation during the next six months because this business was hardest hit by the slump, Stanley said.
“During the middle of the housing boom, banks were staffing up to handle the flow of business coming in, and when lending slowed down, a lot of those departments were downsized,” Stanley said. With the industry in the “early stages of a turnaround,” banks are increasingly interested in lending to consumers again and there are more mortgages to process, he said.
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About 45 percent of the fourth quarter borrowing gains came from governments, including municipal securities and loans, U.S. savings bonds and Treasury securities. While this type of lending doesn’t require as many workers to process, there still is a stream of associated business that drives some hiring, Ablin said.
The rate of change in credit-market activity has outpaced the rise in related employment because of the “material increase” in government borrowing since 2010, Stanley said.
Both measures lag behind pre-recession levels, with employment in credit intermediation trailing the 2006 peak by 335,400, Labor Department figures show. Meanwhile, borrowing in all domestic nonfinancial sectors rose $2.8 trillion at a seasonally-adjusted annual rate in the third quarter of 2007 -- about $294 billion more than the most-recent reading, based on Fed data.
Economic expansion at a “moderate” clip will lead to additional lending, and related employment should “trend higher,” Maki said. He forecasts that all U.S. employers added 175,000 to payrolls last month, below the median estimate of 199,000 among economists surveyed by Bloomberg. March figures are scheduled to be released April 5.
Gross domestic product grew 0.4 percent in the fourth quarter, following a 3.1 percent gain in the third, based on Commerce Department data.
The Fed’s quarterly survey of senior loan officers showed that “generally modest fractions of domestic banks reported having eased their standards across major loan categories over the past three months,” the central bank said in its Feb. 4 report. In addition, respondents said “demand for business loans, prime residential mortgages and auto loans had strengthened.”
With banks “dipping their toes back in the water” again, that should bode well for the labor market because of the “striking correlation” between these sets of data, according to Stanley. “When borrowing is accelerating, you would expect banks and other institutions to hire workers to manage the flow.”
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