U.S. economic growth quickened in the third quarter to a 2.5 percent annual rate, after a 0.4 percent pace in the first quarter and 1.3 percent in the second. Employers added 80,000 employees to their payrolls in October, and the unemployment rate dipped to 9 percent.

The survey of loan officers at 51 domestic banks and 22 U.S. branches and agencies of foreign banks was conducted from Oct. 4 to Oct. 18, the Fed said. The report doesn't identify respondents.

“This was taken over a period when there was intense uncertainty about where the U.S. and world economy was headed,” said Millan Mulraine, senior U.S. strategist at TD Securities in New York. “You would fold your wings when you're not certain about where things are headed, so this report, while disappointing, should be seen as mostly transitory.”

The Standard & Poor's 500 Index advanced 11 percent in October, the best since 1991, as European leaders agreed to expand their bailout fund. The rally snapped five months of losses.

U.S. stocks rose following the report after the European Central Bank's Juergen Stark said the region's debt crisis will be under control in two years at the latest. The S&P 500 was up 0.3 percent at 1,256.77 as of 2:55 p.m. in New York. The yield on the 10-year Treasury declined 4 basis points to 1.99 percent. A basis point is 0.01 percentage point.

Demand Weakened

The survey showed that demand for commercial and industrial loans weakened in the third quarter, a reversal from recent quarters. Banks saying they tightened standards on such loans cited “reduced tolerances for risk, decreased liquidity in the secondary market, and increased concerns about the effects of government policies” as well as uncertainty about the economy.

Banks reported tightening standards on nonfinancial firms that have significant exposures to European economies. These loans were “a small portion — less than 5 percent” of outstanding business loans at a majority of respondents, the Fed said.

Banks were more likely to ease than tighten standards on consumer credit-card loans and other non-auto loans, the survey said. They were also more likely to report “strengthening demand for consumer credit card and auto loans, in line with the past few quarters.”

A measure of consumer confidence declined last week to its lowest level since the depths of the recession in the first quarter of 2009. The Bloomberg Consumer Comfort Index fell to minus 53.2 in the week ended Oct. 30, the second-lowest reading in almost 26 years of data. The gauge has held below minus 50 for six of the past seven weeks, a period unmatched even during the 2008-2009 economic slump.

Consumers have continued to spend even as their confidence remains battered. Household purchases, the biggest part of the economy, increased at a 2.4 percent pace in the third quarter, more than projected by economists.

Bank of America Corp., the second largest U.S. bank by assets, last month swung to a third-quarter profit, with the bottom line boosted by higher revenue and better credit quality. The bank's provision for loan losses dropped to $3.4 billion from $5.4 billion a year earlier as credit improved in the card unit and commercial lending, the bank said.

Credit Quality

“We continue to see solid performance in our commercial and corporate lending businesses,” Brian Moynihan, the bank's chief executive, said in an Oct. 18 earnings call. “Our credit quality and delinquencies continue to improve, while reserve coverage remains at high levels.”

Standards on commercial real estate loans were little changed, the Fed survey said. In the last survey, such standards were reported as being “at or near their tightest levels since 2005.”

Commercial real estate prices plunged 49 percent from October 2007 to a 10-year low in April 2011 of this year. While prices have risen since April, they remain 41 percent below their 2007 peak, according to the Moody's Commercial Property Price Index.

“Reports of strengthened demand for mortgage loans to purchase homes outnumbered reports of weaker demand for the first time since early 2010, perhaps reflecting refinancing activity,” today's Fed report said.

Mortgage rates near record lows have failed to revive the housing market after five years of price declines. The average 30-year fixed rate mortgage was 4 percent as of Nov. 3, according to a Freddie Mac index. The index reached the lowest level in 40 years in October when rates fell to 3.94 percent.

Residential real-estate prices dropped 3.8 percent in the 12 months through August and remain 31 percent below their 2006 peak, according to the S&P Case-Shiller home price index in 20 cities.

Bernanke last week said buying more mortgage-backed securities is a “viable option” for the central bank. “The housing sector is a very important sector,” and adding to mortgage-bond holdings is “certainly something we would consider if conditions” are appropriate, he said.

Bloomberg News

Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.