Whether – or when – the US economy slips into recession depends on how the recent turmoil in the banking sector spills over to Main Street.
Less credit and tighter credit standards would make it harder for people to buy cars and homes, and harder for businesses to expand and invest. Heightened worries about the banking system and heightened chances of a recession also risk households becoming more cautious about spending and companies reluctant to increase payrolls or make capital investments.
The economy was already showing some cracks from the Federal Reserve’s steep rate hikes to stave off inflation. The collapse of three US banks, followed by a crisis of confidence in Credit Suisse Group AG, roused investors concerned about the stability of the financial sector.
With conditions changing hourly, traditional economic data points – which are typically released monthly or quarterly with a lag – are proving less helpful.
Below are some places to gauge the economic impact of the turmoil in the banking sector. However, it should be noted that some of these indicators have already declined in recent months, which will make deciphering the impact even more difficult:
bank loans
Every Friday at around 4:15 p.m. in Washington, the Fed releases a slew of information about the assets and liabilities of the nation’s commercial banks. Consumer, real estate, and commercial loan statistics are all included and broken down into broader categories based on bank size.
The report, known as H.8, is being closely watched by economists and investors for insights into lending patterns and deposits at both regional banks and the country’s largest banks.
The Senior Loan Officer Opinion Survey on Bank Lending Practices is a quarterly survey of up to 80 major domestic banks and 24 U.S. branches of foreign banks that also provides insights into lending standards and demand for and lending to businesses and households.
Although not a high-frequency measure, the next report will be released in April – a favorable insight after the turmoil in March. Evidence of tightening bank lending standards could raise concerns about the outlook for the economy.
consumer confidence
Consumer confidence is volatile and fragile, and while it’s certainly not perfect, it can sometimes help signal changes in personal spending.
The first signs indicate that the upheavals in the banking sector are having an effect. A measurement by Penta and CivicScience showed that confidence in the US economy fell the most since June in the two weeks ended March 14.
The University of Michigan March consumer survey results, due to be released later Friday, were conducted from February 22 to March 15 and are likely to reflect some impact from the recent market turmoil. The final index, to be released on March 31st, will provide a clearer picture of consumers’ initial reaction to the bank failures. The data is published twice a month.
The Conference Board has a similar action due March 28.
Credit Card Spending
A key way to gauge whether Americans are withdrawing their spending is through credit card details.
The Bureau of Economic Analysis estimates spending on a variety of services and goods using daily payment card data. Unlike personal spending data, which is released monthly and with a significant lag, BEA generally updates this data on a weekly basis.
Several private sources also provide regular insights into consumer spending, including Bank of America Corp. and Visa Inc.
business mood
The Census Bureau’s Business Trends and Outlook Survey provides a way to get timely insights into businesses across the economy. The survey is sent to around 200,000 companies every two weeks and contains figures on performance, turnover, employees and hours worked. The next release covers the two weeks to March 26th.
The National Federation of Independent Business, a small business association, regularly surveys its members on issues such as hiring plans, capital expenditures and the possibility of obtaining a loan. The NFIB released its latest results earlier this week, so the next reading won’t be for about a month. The reports appear every second Tuesday of the month.
household behavior
The Household Pulse Survey, an experimental Census Bureau survey launched in the depths of the pandemic, has become a major source of timely information on topics ranging from employment status to food supplies and methods of meeting spending needs. Data is collected at two week intervals of two weeks on, two weeks off.
OpenTable, a booking platform for restaurant reservations, has daily data on reservations nationally and in a variety of US cities. While it can be volatile, a sustained decline in reservations could indicate Americans are withdrawing discretionary spending.
job availability
Companies tend to slow and eventually freeze hiring when demand slacks to limit job cuts. While government data on job vacancies is released with a significant delay, many job search websites provide much more up-to-date figures on the state of labor demand.
Indeed provides near real-time visibility into job postings on their site by country, state, city, and industry. Even before last week’s events, job vacancies were already declining in many industries.
The reduction in temporary workers can also be an indicator of entrepreneurial concerns about the future. The final step is major layoffs, which is often seen in WARN notices — or advance notice of plant closures and mass layoffs — ahead of government metrics.
–Assisted by Alex Tanzi, Augusta Saraiva and Ben Holland.
This article was provided by Bloomberg News.
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