Lowe’s warns of slowing economy; Banking survey reveals contracting activity, sagging demand, and rising stress.

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The financial landscape is shifting, and not for the better. Over the past year, banks have significantly tightened their lending standards, a move reminiscent of the caution exercised during the Global Financial Crisis and the COVID-19 pandemic. The Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) reveals that these tighter criteria are becoming the norm, driven by a combination of economic conditions that reduce loan demand and heighten the risks associated with lending. The increasing policy rates and a slowing economy are key factors behind this trend, signaling that the financial system is bracing for potential turbulence.

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This tightening of lending standards isn’t happening in a vacuum. Recent economic reports have consistently fallen short of expectations, raising alarms about the impact of high interest rates on economic growth. Manufacturing activity, a bellwether of economic health, has shown clear signs of weakening, contributing to growing concerns of an impending slowdown. The signs are ominous, and the tightening of credit could be the catalyst that pushes the economy into a deeper downturn.

Lowe’s Companies Inc, a major player in the home improvement retail sector, is feeling the pressure as well. Despite generating substantial cash flows from operating activities—vital for funding its operations—Lowe’s has issued a stark warning about the slowing economy. This is not a company known for crying wolf; if they’re worried, it’s a sign that the challenges on the horizon are very real.

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The combination of tighter lending standards, weakening economic indicators, and cautionary notes from industry giants like Lowe’s paints a grim picture of the road ahead. As banks become more cautious in their lending, the ripple effects could stifle economic growth, leading to reduced consumer spending, slower business investment, and ultimately, a potential financial crisis. The question now is whether we’re prepared for the storm that seems to be brewing, or if we’re on the brink of another economic catastrophe.

Sources:

www.frbsf.org/research-and-insights/publications/economic-letter/2024/05/economic-effects-of-tighter-lending-by-banks/

www.investopedia.com/new-signs-of-weakening-economy-heighten-concerns-about-high-interest-rates-8687656

finance.yahoo.com/news/decoding-lowes-companies-inc-low-050341028.html

1 in 3 chance of recession over the next year
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