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Willingness to lend falters

Tighter bank credit could threaten US retail sales

– The share of banks more willing to lend to consumers has been declining, a trend that threatens retail-sales growth.

The net percentage of financial institutions reporting increased willingness to make installment loans, which include credit cards, has averaged 15.4 percent in three surveys of senior loan officers released this year by the Federal Reserve. That compares with 18.9 percent during the same period last year and almost 25.4 percent in 2011.

This gauge of lending practices fell to 13 percent for responses collected between July 2 and July 16, the most recent available, from 22.2 percent in April. The net figure represents the percentage of banks more willing to lend minus the share less willing to lend.

These results have been “oscillating in a narrow band, suggesting choppy sales” will continue into 2014 and probably will be “a bit lower,” said Dan Binder, an analyst at Jefferies & Co. in New York. That’s because the loan-officer survey is a leading indicator of retail-sales growth by about nine months, he said.

“There’s a trickle-down effect from tighter bank credit,” which implies that a “muddle-through” scenario is likely in months to come, Binder said.

Meanwhile, the higher payroll tax for consumers this year also has constrained spending, he added.

Retail sales, excluding autos, have risen an average of 3.6 percent a month this year from a year ago, compared with 5 percent in the same period for 2012 and 7 percent for 2011, based on figures from the Census Bureau.

August’s sales growth, at 3.3 percent, was the slowest since April. September figures are scheduled to be released Oct. 11, followed by the Fed’s loan-officer survey early next month.

The decline in the net measure of banks’ willingness to lend suggests that retail sales could suffer, said Lance Roberts, who oversees $500 million as chief executive officer of Streettalk Advisors LLC in Houston. That’s a concern because household spending accounts for almost 70 percent of U.S. growth, he said. “Standards still are very tight,” a lingering effect of the financial crisis, and “banks still don’t have a lot of gumption to make loans,” Roberts said.