Bloomberg

By Joshua Zumbrun - Jan 30, 2012 2:01 PM CT

Demand for business loans increased in the fourth quarter as economic growth accelerated, according to a Federal Reserve survey of senior loan officers at banks.

Seventeen of 56 banks reported stronger demand among companies with $50 million in annual sales or more, according to the survey released today in Washington, while six reported weaker demand. Demand among small businesses for loans increased by the most in any quarter since 2005.

Economic growth accelerated last quarter to a 2.8 percent annual rate, the fastest pace since the second quarter of 2010. The expansion still isn’t strong enough to push down anunemployment rate that has been at 8.5 percent or higher for 34 consecutive months, prompting the Fed last week to say its benchmark interest rate will be kept near zero until at least the end of 2014.

While business demand for borrowing increased, banks reported “little change in standards on commercial and industrial loans but a continued easing of pricing terms,” the survey said. The pickup in business lending was a reversal of the previous survey, released in November, in which more banks reported a drop than an increase in demand.

Banks and businesses may be “moving away from the ‘buckle down’ approach,” said Drew Matus, senior economist at UBS Securities LLC in Stamford, Connecticut.

“If a firm wants to expand they typically need to borrow money to do it,” Matus said. “So at a minimum this suggests we should still be looking for decent job growth over the next three to six months.”

More Jobs

The economy will add 145,000 jobs in January, according to the median estimate of a Bloomberg News survey of economists ahead of a Feb. 3 Labor Department report, down from a gain of 200,000 the previous month. The unemployment rate will probably remain unchanged at 8.5 percent, according to the survey.

The survey pointed to “important factors” driving the increase in business lending such as “funding needs related to inventories, accounts receivable, and mergers and acquisitions.” Most banks that reported weaker demand pointed to reduced funding needs for capital investment, the Fed said.

“Recent economic data suggests that growth improved in the fourth quarter of 2011, which we believe reflects the positive impact of the Fed’s easing that was initiated in late 2010,”Mike DeWalt, director of investor relations at Caterpillar Inc., said on a conference call with analysts last week. “It’s our view that the full impact of those actions hasn’t materialized yet and that it will contribute to continued growth in 2012.”