Weekly Review & Outlook: February 26, 2024

February PMI data showed a surprising increase in Manufacturing activity and other secondary macro data was consistent with moderate economic growth. Highlights for the coming week will be additional inflation measures following the earlier hot January CPI numbers. I reviewed the H.8 data for quarter to date industry trends and while I was in the data I completed some longer period analysis of key balance sheet funding ratios.

S&P Global February Flash PMI data (February 22) showed surprising acceleration in Manufacturing activity. The Composite number declined slightly to 51.4 from 52.0 in January as Services expanded more slowly. The report was consistent with roughly 2% annualized GDP growth. Additional the report included constructive inflation comments noting, The sustained expansion is being accompanied by subdued price pressures. Although up slightly in February, the survey’s gauge of selling prices for goods and services continues to run at a level consistent with the Fed hitting its 2% inflation target, and a further fall in cost growth to the lowest since October 2020 hints at price pressures remaining subdued in the coming months.”

Mid-quarter review of the Federal Reserve H.8 bank industry data finds lower loan balances driven by decreases in Consumer Loans. The seasonal decrease in Credit Card balances is greater than typical with total consumer revolving credit down -3.4% so far. Commercial Real Estate balances are up 0.6% led by a 1.2% increase in Multi-family balances. Total Deposits are lower by -0.7% with a 5.1% increase in Large Time Deposits offsetting other deposit declines. Small Domestic Banks have seen only a -0.2% decrease in Total Deposits quarter to date bringing the mix of Large Time Deposits to 13.0% from 12.4% at the end of 2023.

I ran longer time period analysis on selected balance sheet ratios utilizing the longest data series available in the H.8 data. My first study graphed Loans/Deposits, Borrowings/Loans and Borrowings/Deposits using weekly data from 1985 through mid-February.

Looking first at Loan/Deposits, the current industry ratio of 84.0% is slightly above the series median of 80.5% but broadly in-line. The blue line in the graph reveals a steady ratio increase from the 1980s through the Great Financial Crisis with a more recent attempt to normalize around 85%.

Comparing Borrowings to Loans or Deposits does not seem to make much of a difference. Current levels for each are about 1 percentage point below the long run averages suggesting the reliance of Borrowings in the current funding mix is wholly appropriate. If we were to exclude the earlier period of lower balance sheet leverage the current Borrowings mix would appear even healthier. Finally, today’s reliance on Large Time Deposits looks in-line with the long run series average. The current mix of 13% is about 1 percentage point above the median and average.