The Vital Link Between Banks and Jobs
The gradual easing of lending standards by U.S. banks may help lower the jobless rate. According to a report by Drew Matus, an economist at UBS, “easier lending standards are usually associated with faster employment growth.” Quantitative easing by the Federal Reserve has left U.S. banks with plenty of money to lend. According to UBS data, since the start of the third quarter they have started to relax lending standards—especially when compared to their approach during the depths of the recession, when the banks were not extending credit.
Easier credit feeds job creation. “What comes first?” asks Matus. “Is a company ready to hire but needs a loan to do so, or does a company see a chance to expand, gets the loan, and then thinks about hiring? It’s not clear, but jobs are jobs.”
By augmenting its bank lending standards composite index with data about corporate capital market conditions, UBS has come up with an even broader gauge of credit availability. This broader measure points to private payroll gains averaging about 150,000 per month for the second half of 2012. That’s faster than the second quarter’s disappointing pace of payroll growth, an average of 91,000 jobs.
Matus figures unemployment will be down to 8 percent by year’s end, more optimistic than the Wall Street consensus of 8.2 percent, compiled by Bloomberg News. Neither outlook is great, but better than the current level of 8.3 percent. He sees gross domestic product growing at a 1.7 percent rate in the fourth quarter—but he thinks this will rise to 2.7 percent by the fourth quarter of 2013. “That assumes the credit crunch doesn’t resume, Congress avoids the fiscal cliff, and Europe doesn’t collapse,” says Matus.
Big assumptions. For now, though, the U.S. recovery remains on.