By Utkarsh Shetti
April 20 (Reuters) - U.S. banks last week reported a sharp ramp-up in corporate borrowing, offering an early indication of resilience in parts of the economy even as inflationary pressures and broader fears of a slowdown persist.
The robust uptick suggests that companies are continuing to borrow working capital despite uncertainty around policy and cracks in the labor market, which typically prompt caution in spending.
Besides, an energy-driven inflation shock linked to the Iran war
has been clouding the outlook for economic growth and interest rates, which have seen a string of cuts.
Michael Dehal, senior portfolio manager, Dehal Investment Partners at Raymond James, said companies could be front-running a possible rate hike to lock in cheaper financing, as the Federal Reserve may be forced to raise interest rates to tackle war-driven inflation.
The American consumer has also remained resilient despite President Donald Trump's sweeping tariffs and the ongoing war, although growth in consumer loans at several big banks was eclipsed by the double-digit growth in commercial lending.
Bank of America, the second-largest U.S. lender, reported over 12% growth in commercial loans, while consumer borrowing balances rose more moderately at 4%. Wells Fargo's consumer loans were up 3.7%, while commercial loans jumped 16.4%.
Still, economists and experts are striking a cautious tone that a long-drawn war and persistently high inflation, paired with slowing job growth, could weigh on borrowing.
CONSUMER BORROWING STABLE
Consumer loan balances grew at a steady pace, mirroring a similar rise in previous quarters and underscoring spending resilience.
"Management teams emphasized stable consumer behavior, rising savings, and no signs of weakness despite inflation and slow job growth," said Maureen Levelis of Morningstar DBRS.
Some banks, however, either reported flat consumer borrowing or posted a fall, a potential signal that some pockets of everyday spending may be coming under pressure.
Experts have said that wealthy households are largely driving spending, while lower-income consumers are cutting back on discretionary purchases amid high inflation and stalling wage growth.
KeyCorp on Thursday reported a more than 3% rise in total loans to $107.7 billion, despite a 7.2% fall in consumer loans.
JPMorgan, the biggest U.S. lender, also said its commercial loan book swelled about 18% to $872.7 billion as of March 31, but consumer borrowing excluding credit card balances remained largely flat.
"The U.S. economy remained resilient in the quarter, with consumers still earning and spending, and businesses still healthy," JPMorgan CEO Jamie Dimon said last week.
Quarterly results from consumer companies such as Nestle, Procter & Gamble, Home Depot and Walmart, over the coming weeks, will offer a clearer insight into consumer spending trends.
(Reporting by Utkarsh Shetti in Bengaluru; additional reporting by Manya Saini and Tharuniyaa Lakshmi; Editing by Sweta Singh and Shinjini Ganguli)
