> Banks expect business loans to grow 8% this year
Bank loans to businesses will grow by more than 8 percent this year, according to the American Bankers Association’s economic advisory committee.
That’s about the same rate of growth for business lending that banks saw in 2015.
“The economy may have challenges to address, but the availability of bank credit is not one of them,” said committee Chairman Carl Tannenbaum, chief economist for Northern Trust in Chicago.
Demand for business loans is strong, and banks aren’t facing as many restrictions on business lending as they faced in the immediate aftermath of the financial crisis, he said.
Creditworthy small businesses should be able to get a loan, he said.
Commercial real estate lending also is “very robust,” Tannenbaum said, with much of that going to multifamily development. Loan-to-value ratios on commercial real estate loans are “still extraordinarily conservative,” he noted, and bank economists are confident there’s no bubble in the commercial real estate market.
The housing market “will continue to nicely” this year, Tannenbaum said. Bank economists expect 7 percent growth in residential real estate investment this year.
“Housing fundamentals are positive, with impressive jobs gains, low oil prices and stronger balance sheets,” Tannenbaum said.
Demographics make housing a good bet for future growth since many young adults who are now renters will start buying houses in the future, he said.
Meanwhile, business capital investment will grow by 3.5 percent this year, according to bank economists.
Overall, the U.S. economy will grow at a moderate pace over the next two years — 2.3 percent this year and 2.2 percent in 2016, according to the economists. They project 2.2 million jobs will be added this year, wages will grow 2.5 percent and the unemployment rate will fall to 4.7 percent, its lowest level in nine years.
This will enable the Federal Reserve to raise interest rates three times this year, and four times next year “in a gradual return to normalcy,” Tannenbaum said.
The committee expects interest rates on conventional mortgages will rise to 4.2 percent by the end of this year, up from around 3.9 percent currently. Mortgage rates will rise to 4.7 percent by the end of 2017, they project.
There was one cautionary note in the bank economists’ forecast: Despite their consensus outlook for continued moderate growth, there was elevated concern among bank economists about potential risks to the economy, Tannenbaum said.
Those potential threats include “faltering emerging markets and related financial risks, which could impair market and economic performance,” he said.