We are seeing multiple signs of a slowdown in lending in the US, as discussed in our recent thematic US Banks Stocks: Exposed to the End of the Credit Cycle. The top chart shows a coincident relationship between sales-to-inventory ratios and C&I lending. As revenues rise, as well as having lower inventory positions to finance, firms have less need for bank credit lines. We can see today a falling inventory-to-sales ratio is consistent with weaker C&I lending. Moreover, the bottom-left chart shows demand for loans leads their supply, and this also points to weaker C&I lending growth over the next 6 months.

One riposte made against the slowdown in C&I lending pointing to a deeper credit problem in the US is that energy companies were tapping more bank credit back in early 2016 as credit markets had effectively shut them out. Now conditions are more normal, the argument goes, energy companies have less need for credit from banks. Our two responses to that are: a) the slowdown in lending we are seeing is widespread, not just confined to C&I lending; and b) energy companies do not appear to have radically changed their amount of corporate issuance. The bottom-right chart shows that US energy firms have been roughly the same proportion of non-financial debt issuance over the last 6 months, and the 12 months before that.  (Please click on charts to enlarge.)

Source: Bloomberg, Macrobond and Variant Perception