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Bank Loans to Businesses Rise, Capping A Week of Good News

In its weekly report on banks' lending to businesses, the Federal Reserve said commercial and industrial (known as C&I) loans increased for the week of April 7. It's just an increase of $4 billion on a $600 billion base, but it is an upturn, and at first glance the increase in lending has happened sooner than in past cycles. The corporate earnings reports this week have been mixed, but the C&I loan increase is part of a string of strong macro news reports, including a 27 percent gain in new home sales, and a rise of nearly three percent in durable goods orders (excluding cars and aircraft).

I don't like CNBC very much -- some of their anchors really rub me the wrong way -- but as someone who works at home I watch it for a few minutes at a time most days (unless I can see The Daily Show or Housewives of New York instead). Today it's a good thing I did, because the host I like least of all came up with the news that loans to businesses had increased in the Fed's most recent weekly report. Have a look:

Click on the graph for a larger image
It's only a small increase, and you can see from the history that loans can show small increases while still in cyclical decline (such as the two circled areas), but it's an increase nonetheless. Commercial paper outstanding also increased for the week.

What's encouraging about this candle in the darkness is that it may be an indication of a better environment for small businesses, which rely primarily on banks for inventory and expansion financing. (Large companies are more likely to raise capital in the bond market, and the Fed's report on bond issues show that U.S. nonfinancial companies raised $32 billion in February -- the second-strongest recent figure, but still at a strong pace.)

The cartoony CNBC host declared all this to confirm a V-shaped recovery. In my view it doesn't, but the news is constructive, and I suppose we will see more evidence as earnings come in over the next few weeks.

A guest commentator on CNBC, a fellow from Jefferies & Co. whose name I failed to note, did caution that the loan increase could be the result of a change in accounting methods that requires banks to bring home loans that were previously off their balance sheets.

But let's hope it's the real thing, and that small businesses are growing again.