What the Fed's data is really showing

One frequently hears that "banks aren't lending" and that "the economy is deleveraging."

These statements are true on many levels because the big sectors that have used debt for the last 30-40 years, like banks and real estate, are cutting back in a big way. But a look into the numbers suggests that a new and very positive trend could be taking root.

Commercial and industrial loans to borrowers outside of the financial industry grew by an annualized $224.9 billion in the second quarter, according to the Federal Reserve's quarterly Flow of Funds report. (See table F.215.) That's the biggest number in at least 15 years, and marked the third straight increase.

The growth was dispersed across households, companies and non-corporate businesses. It also excludes mortgages and consumer credit (which are still dropping).

Another interesting data point appeared on table F.101, which tracks all non-financial business. There we see that trade payables and trade receivables have been trending higher for the last 12 months. At the same time we have been seeing employment gains in industries such as mining, logging, metal fabrication, trucking, and the production of transportation equipment.

Here's how I interpret what's going on: The U.S. economy is gradually reindustrializing, and businesses that languished for decades, especially in the Rust Belt, are coming back to life.

The data won't be super-clear in the early stages of a process like this because it's still emerging. But real companies get real orders for things like steel tubing or machinery, and they start hiring people. We already know this is happening, especially in conjunction with the budding oil and gas sector.

Then individuals who have been around for a long time and seen the factories losing jobs realize that they can make good money reopening an old plant or warehouse. So they take out loans. This, I believe, is what we're seeing in the Fed numbers, and jobs are created in the process.

Companies tend to be much smarter borrowers than consumers--especially when they're in the early stages of an expansion as these seem to be. It will take a long time before the sheep-like economists on Wall Street notice this is happening, but it's good for America and will eventually show up in the stock market as well.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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