Is the slowdown of bank loans a bad sign for the economy?

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Something is happening in the banking world that suggests that the economy is not as strong as it seems.

Four of the largest US banks announced Friday third quarter results above Wall Street expectations.

But a disturbing trend was once again noted: banks were not lending at the same rate as in recent years. Although the economy can grow without strong loans, it can struggle to stay strong if loan growth remains weak.

In the third quarter, combined loans of JPMorgan Chase, Citigroup, Wells Fargo and PNC Financial Services increased only 2% year-over-year, in line with the second-quarter rate. . Last year, borrowings from the four banks increased by 2.9% and in 2016 and 2015 the rate was well above 4%.

Although third-quarter loan growth has been below normal, the tax cuts promulgated at the end of last year have continued to drive up bank profits and rising interest rates are helping banks to better earn their loans. JPMorgan Chase's profits jumped 24%. Wells Fargo, still under regulatory control after a series of scandals, recorded a 32% increase in net profit, helped in part by lower costs. Citigroup's profits increased by 12%.

PNC's profits were significantly higher, but its low-yielding loans allowed its stock to lose more than 5% on Friday. In the third quarter, its loans grew by only 0.9% and banks reported that growth would be modest in the fourth quarter.

It is probably too early to worry about the slowdown in loans.

One of the reasons for the slowdown in growth should not be a cause for concern. Businesses, which benefit from higher incomes and lower taxes, have less need to borrow and cancel existing debt when it expires. William S. Demchak, CEO of PNC, said Friday that borrowers are repaying their loans more than expected.

Another reason for the lower growth is reasonable. Bank executives said they found signs of overheating of the economy and being held back. In Wells Fargo, loans decreased 1% in the third quarter. Loans to finance the purchase or construction of buildings used by businesses led to a decline. John Shrewsberry, chief financial officer of Wells Fargo, said on Friday that the bank remained cautious in lending to the sector for the sake of maintaining a "credit discipline".

Nevertheless, weak loan growth may indicate that the economy is slowing.

Take Mortgage: Rising interest rates drive up the cost of mortgages, while housing prices remain high in many parts of the country. As a result, the demand for mortgages has decreased. Wells Fargo's mortgage applications in the third quarter were lower than in the previous four quarters.

Some companies may be less willing to borrow because their leaders are starting to be nervous about President Trump's trade policy and other geopolitical developments that could weigh on global growth. JPMorgan Chase chief executive Jamie Dimon warned of global uncertainties in a statement accompanying the bank's third quarter earnings report. JPMorgan's loan growth of 4.4% was the strongest of the four banks reported, but was still well below the rates posted in 2016 and 2015.

In addition to bank balance sheets, signs of slowing credit growth are also visible. Companies borrow on the bond markets and many loans are also found in special financial entities called guarantee obligations. However, corporate bond issues decreased by 15.6% between September and September, compared to the same period last year, according to data from Sifma, a professional group in the sector. financial. Debt issued by secured loans and debts decreased by 47%, according to Sifma.

Then there is the message that the bank shares send. Despite the smooth running of the economy, rising interest rates and promises of deregulation by the Trump administration, bank stocks have been falling behind the broader market for months. This is a sign that investors are not particularly excited by the growth prospects of the banking sector's core businesses, such as credit and trading. The Standard & Poor's 500 index is up 3.5% this year. Bank shares, measured with the help of the KBW Nasdaq Bank index, lost 5.9%.