Economic indicators

Executives at America's largest banks are making rosier predictions about the financial health of U.S. households than they were a year ago, when their forecasts proved to be overly pessimistic.

A key gauge of activity that tracks startups most likely to create jobs declined in October, potentially signaling the start of a slowdown after the rapid increase in interest rates. It presents a red flag for community banks and credit unions that are major lenders to small businesses.

Broader economic factors, including growing household debt, are also likely to keep the housing market stagnant, Freddie Mac said.

Banking executives anticipate that loan demand will remain muted over the next 12 months, according to a new survey by the financial services firm IntraFi. That finding lines up with bankers' expectation that rates won't start declining until at least the second half of 2024.

The financial landscape is currently riddled with warning signs that point toward potential liquidity issues for banks.

Mergers and acquisitions are rebounding and equity capital markets are thawing, says C.S. Venkatakrishnan. That's a welcome forecast after a persistent slump sapped investment banking revenue across the industry. 

More than half of 526 respondents to a Markets Live Pulse survey said that personal consumption — the most important driver of economic growth — will shrink in early 2024, which would be the first quarterly decline since the onset of the pandemic.

As consumers' cushion shrinks, they are becoming more dependent on their paychecks to maintain their standard of living. Economists are split on whether wage growth is strong enough to fill the gap.

Community bankers anticipate that interest rates could soon level off and the broader economy may avert a downturn as a result. If that forecast proves true, lenders could minimize credit losses and enjoy stronger loan demand than they had expected earlier in the year.

Stock markets have shot up as investors grow hopeful that the United States will avoid a recession. But nearly 3 in 4 community bankers are less optimistic that the Fed will achieve its mission of reducing inflation without causing a downturn, a survey from IntraFi found.