A slowdown in bank lending is turning into ground zero for a debate over the growing gap between economic hope and reality in the wake of Donald Trump’s US election win.

The deceleration in loans made to companies and consumers has befuddled some analysts who worry that the worst growth rate in about six years bodes ill for the US recovery at a time when expectations remain high. With credit acting as the lubricant for economic expansion, solving the mystery of the downturn has gained fresh urgency as investors wait to find out if the enthusiasm tied to Trump’s pro-growth agenda will translate into a tangible boost.

“One of the stories for optimism at the start of the year was that the gain in confidence and financial market deregulation would spur a rebound in credit creation,” said Michelle Meyer, economist at Bank of America Corp. “Surprisingly, the data show the opposite.”

Commercial bank credit rose by an annualised 4.2pc in the week ending March 15, down from an almost 8pc rate last year, according to analysis by JPMorgan Chase & Co.

Commercial and industrial loans have seen the biggest slowdown, rising by only $67bn over the past 12 months, compared with $191bn over the course of 2016 in a sharp reversal of a multi-year trend that has seen such lending surge to a record $2.1tr of outstanding loans.

Ask bank managers what the problem is and you’ll get a lot of theories: Regulators have been eyeing underwriting standards in the wake of the lending boom, a shortage of qualified workers is preventing businesses from expanding, the rout in oil prices stymied demand, bank loans have been competing with a booming bond market, and of course, interest rates have been rising. But high up on the expansive list is the simple idea that it takes time for a more cheerful mood to materialise in actual activity.

“I would tell you that there is a huge amount of optimism out in the marketplace and I believe that it’s going to be translating into a substantially higher loan growth as we head through the year,” said Kelly King, chief executive of BB&T, in response to analyst queries.

One of the stories for optimism was that the gain in confidence and financial market deregulation would spur a rebound in credit creation… Surprisingly, the data shows the opposite”

The lending cool down contrasts with surveys taking the pulse of the US economy — figures released last Tuesday showed consumer confidence jumping to its highest level in more than 16 years, fuelling questions over the growing gap between ‘hard’ and ‘soft’ economic data that has opened up since November.

“There have been a few troubling signs recently, particularly around loan growth that is consistent with this idea that business may be waiting for policy change and in the near term we could actually hit an air pocket in the US economy where businesses are on the sidelines, and we get a period of slower growth,” said Paul Eitelman, strategist at Russell Investments, adding that executives need to see the Trump administration deliver on its policy promises before they can ramp up investment.

Corporate credit analysts at UBS Group share that concern, blaming a potent mix of political uncertainty, rising rates and historically-high corporate borrowings for reduced demand for company loans. Companies have taken advantage of years of low interest rates and yield-hungry investors to load up on debt in a wide variety of forms.

“Anecdotes abound today that high leverage is altering real economic decisions. Companies today want to be sure that growth and tax policy will be tailwinds, before committing capital to work,” wrote analysts led by Stephen Caprio. “Simply put, the buffer for a miscalculation is not there for levered firms.”

Josh Rosner, bank analyst at Graham Fisher & Co., worries that the dip in lending may herald the long-awaited turn of the credit cycle after years of growth. He notes that more loans on bank balance sheets have been souring this year, which may spur them to try to offload non-performers to specialist funds and investors.

“It appears that, with rates low, banks have been able to refinance loans of weaker credits to support performance,” he wrote in a note published last Wednesday.

Bloomberg’s Felice Maranz and Matthew Boesler contributed.

Bloomberg/The Washington Post Service

Published in Dawn, Economic & Business, April 3rd, 2017