Fed Says Business Lending Rose in April While Nation's Consumers

Banks continued to book more business loans in April, but consumer lending fell across the country, the Federal Reserve Board said Wednesday.

Commercial lending was strongest in the Philadelphia, Chicago, St. Louis, Kansas City, and Dallas districts, the Fed said in the Beige Book, its periodic review of the country's economy.

"None of the 12 districts reported an outright decrease in business lending," the Fed noted.

The Cleveland, Richmond, Chicago, and San Francisco regions reported "fierce competition" for business loans, with lenders in Chicago and San Francisco lowering credit standards.

Consumer lending fell in every district but Kansas City. Banks in the Cleveland, Richmond, and St. Louis districts reported significant declines in mortgage lending, while Chicago said banks were cutting back on credit card lending.

Lenders in the Chicago, Philadelphia, and Dallas regions tightened consumer credit standards. New York and Cleveland banks reported slight improvements in credit card delinquency rates, and Cleveland, Atlanta, and Chicago said asset quality remained good.

Over all, the Fed said the economy expanded at a moderate rate during the past six weeks. Housing and construction remained strong, and retail sales exceeded last year's mark. Retail prices were flat, although the cost of raw and intermediate goods rose in some regions.

Economists said they were not worried by the drop in consumer lending.

"This isn't a reflection of a slowing economy," said Nicholas Perna, chief economist at Fleet Financial Group. "It is more a reflection of tightening of standards in the consumer area than anything else."

In fact, the economy is so strong that the Federal Open Market Committee is likely to raise short-term interest rates when it meets May 20, predicted Christine Chmura, chief economist at Crestar Financial Corp.

"The economy continues to operate at a high level that could ignite inflation," she said. "This report supports further tightening."

The Fed raised the federal funds target rate 25 basis points on March 25, the first hike in more than two years.

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