NEW YORK -- The share of banks more willing to lend to consumers has been declining, a trend that threatens retail-sales growth.
The net percentage of financial institutions reporting increased willingness to make installment loans, which include credit cards, has averaged 15.4 percent in three surveys of senior loan officers released this year by the Federal Reserve. That compares with 18.9 percent during the same period last year and almost 25.4 percent in 2011.
This gauge of lending practices fell to 13 percent for responses collected between July 2 and July 16, the most recent available, from 22.2 percent in April. The net figure represents the percentage of banks more willing to lend minus the share less willing to lend.
These results have been "oscillating in a narrow band, suggesting choppy sales" will continue into 2014 and probably will be "a bit lower," said Dan Binder, an analyst at Jefferies & Co. in New York. That's because the loan-officer survey is a leading indicator of retail-sales growth by about nine months, he said.
"There's a trickle-down effect from tighter bank credit," which implies a "muddle through" scenario is likely in months to come, Binder said. Meanwhile, the higher payroll tax for consumers this year also has constrained spending, he added.
Retail sales, excluding autos, have risen an average of 3.6 percent a month this year from a year ago, compared with 5 percent in the same period for 2012 and 7 percent for 2011, based on figures from the Census Bureau. August's sales growth, at 3.3 percent, was the slowest since April. September figures are scheduled to be released Oct. 11, followed by the Fed's loan-officer survey early next month.
The decline in the net measure of banks' willingness to lend suggests retail sales could suffer, said Lance Roberts, who oversees $500 million as chief executive officer of Streettalk Advisors LLC in Houston. That's a concern because household spending accounts for almost 70 percent of U.S. growth, he said.
"Standards still are very tight," a lingering effect of the financial crisis, and "banks still don't have a lot of gumption to make loans," Roberts said.
Consumer spending has been constrained by Americans who remain cautious about buying big-ticket items and amassing additional debt after they've been so diligent to "pay off everything they can," Roberts said. "A lot" of his customers, most of whom are about five years from retirement or five years into it, "are convinced that bad things are coming."
The deceleration in the Fed survey corresponds with other economic indicators that also have slowed, he said. Central-bank policymakers project the U.S. economy will expand 2 percent to 2.3 percent this year, according to their central-tendency estimate released Sept. 18, which excludes the three highest and three lowest forecasts. In June, the range was 2.3 percent to 2.6 percent. The median forecast of economists surveyed by Bloomberg is a 1.6 percent gain.
Amid "some softness" in U.S. growth this year, investors including Eric Teal of First Citizens BancShares in Raleigh, N.C., monitor consumer lending to assess the sustainability of the recovery. An increased willingness by banks to extend loans would be a "positive signal" for both the stock market and the broader economy, while a decline would be a headwind to expansion, he said.
"Availability of credit is really important," Teal said. Although it's been more than four years since the 18-month recession ended, there's been a "long adjustment period" for a return in loan activity.
Even so, recent trends don't necessarily mean consumers won't be able to find credit to support moderate spending into next year, said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. Rather, there's probably "more of the same" ahead, as retail sales and income growth tend to rise and fall together.
Real disposable personal income, the money left over after taxes and adjusted for inflation, has averaged 0.8 percent growth in 2013, down from 1.4 percent in the same eight-month period of 2012. August's 1.6 percent gain from a year earlier was the biggest increase this year, according to data from the Commerce Department.
Given this growth, bankers' lending sentiment hasn't slowed to a level that alarms Hoffman for the "all-important" holiday season, as this year probably will look a lot like last, he said. If the net willingness to lend were to fall below 10 percent, however -- which hasn't happened since 2010 -- that "wouldn't bode well."
Retail sales will rise 3.4 percent in November and December from a year ago, "slightly stronger" than 2012, based on a forecast by the International Council of Shopping Centers in New York. Deloitte LLP, a New York-based consulting firm, estimates total holiday sales will increase by as much as 4.5 percent, in line with last year.
The political tensions that caused this week's government shutdown could temper consumer enthusiasm for holiday shopping. Confidence, as measured by the Bloomberg Consumer Comfort Index, fell in the week ended Sept. 29 to minus 29.4 from minus 28.1 the prior week and still is more than 31 points below its pre- recession peak.
All this is why investors such as Teal monitor the senior loan-officer survey for clues about the strength of the expansion as it enters its fifth year, he said.
"This is an important tool for us to look at to develop our views about future growth."