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“People are for the first time in some time using the ‘c’ words: credit crunch,” Anirban Basu, the chief economist at Associated Builders and Contractors, a trade association, told The Times in an article published Monday. The Federal Reserve Bank of New York’s Survey of Consumer Expectations found that the share of consumer respondents indicating that credit was harder to get than a year ago rose to 58.2 percent in March, the highest proportion recorded since the survey’s creation in 2013.
If you stop and think, though, a credit crunch, as bad as it is, at least indicates that there’s an appetite for borrowing that’s not being sated. When you really have to start worrying is when people don’t want to borrow because they see bad times ahead. In that situation, monetary policy becomes less effective; lowering the interest rate to induce borrowing is as useless as pushing on a string, as economists like to say.
Unfortunately, there are signs that the observable dip in loans and leases is at least partly due to weak demand. A New York Fed survey in February found that the application rate for any type of credit over the preceding 12 months declined to its lowest point since October 2020. It probably wasn’t because applicants fear being turned down. In fact, the reported overall rejection rate for credit applicants decreased to 17.3 percent from 18.8 percent in October 2022, the bank said.
That’s consumers. As for small businesses, which, unlike big companies, rely a lot on bank loans, only 2 percent of owners reported in March that all their borrowing needs were not satisfied, according to the National Federation of Independent Business; 29 percent of N.F.I.B. members who were randomly chosen for the monthly survey reported that all their credit needs were met, and 59 percent said they were not interested in a loan. Only 2 percent were planning an expansion, the least since March 2009. “That is a major ‘yikes!’” David Rosenberg, the president of Rosenberg Research & Associates, a forecaster, wrote to clients on Wednesday.
The Federal Reserve, determined to return inflation to its target of 2 percent annually, is putting a low priority on making more credit available to ease lending conditions. But even if it did change its stripes and chose to prioritize growth, it would have a hard time getting much done if the problem has become at least partly a lack of demand for loans.
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