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This Rate of Descent is Worthy of Attention

CAMS Weekly View from the Corner – Week ending 1/10/2020

January 13, 2020

This past Friday the Bureau of Labor Statistics (BLS) released the monthly employment figures to the tune of 145,000 new jobs created in the month of December.  This fell just short of expectations which were 160,000 new jobs.  All told, job creation continues on at a healthy clip.

Friday also gave us an updated release of an important loan category that we have shared in these Weekly Views over recent years.  Admittedly, we share this infrequently in-part because it is a big picture item that we typically draw little attention to unless a notable behavioral change takes place via its underlying trend.

In fact, it was only a couple of months ago that we had offered this in a Weekly View as a general update on this loan category.  As of Friday, we are noticing an unexpected rapid descent that is certainly worthy of offering it here again so soon.

Commercial and Industrial Loans (C&I) is the category in question here.  These are loans taken out by businesses and corporations to fund anything from general business expansion to extensive capital investments.  Historically, they play a notable role in underlying economic activity.

In a pseudo sense we like to look at this category as an additional business confidence measure.  We do so because underneath these loans it takes confidence to decide on longer-term investment oriented projects and purchases to the point where a C&I Loan would come into play.


The above is a five year chart of C&I Loans.  Typically we like to share longer-term charts for a larger perspective but on this development we thought it best to zero in more on the relatively recent activity.

In its wholeness the above five year trend story looks a bit roller-coaster-ish.  The first couple of years were clearly trending down then a notable uptrend and now in the last few months a significant decline.

An ebb and flow in the growth rate of this category is not an “economy killer” if you will.  Friday’s update still reflects a growth rate of 2 ½% compared to year ago levels which is positive overall.

Under the view of knowing we are operating with highly valued markets and market participants can be quite sensitive to anything weakening economically; we want to be fully aware of the economic nuances.

Dating back to 1950, imminent recessions have proved to be far more certain when C&I loan growth rates were trending down or already negative.  Currently, this indicator remains positive in its growth rate but we are cognizant of its developing down trending behavior and thought it worthy to share once again.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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