Published on Sep 4, 2026
This article was written by Adem Tumerkan
Content Editor, Dunham | 2025 ThinkAdvisor Luminary Award Winner | 2026 Wealthies Finalist — Thought Leader of the Year | Macroeconomics, markets, geopolitics & global trends
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Bank lending is accelerating even as long-term Treasury yields rise and borrowing costs increase. At the same time, China is exporting its EV glut abroad, while repeated U.S. payroll revisions are revealing a weaker labor market than first reported.
C&I (commercial and industrial) loan growth accelerated to a 14.8% annual rate in Q2, with a net 16.1% of banks reporting stronger demand from large and middle-market firms even as the 10-year Treasury reached about 4.80%.
High rates usually slow the economy by making loans expensive and harder to obtain. Banks are weakening that pressure by competing for corporate borrowers and offering better terms. That can keep business spending and economic growth running, which may give inflation more fuel and push the Fed toward another rate hike.
Riddle me this - what happens when the Fed reaches for the brake just as corporate America steps on the gas?
Well, we are about to find out. Because that is exactly where the economy sits today.
The basic idea is something we’ve all heard - the Fed raises interest rates, loans become expensive, companies borrow less, and the economy cools.
But banks do not lend based on interest rates alone - they also care deeply about whether borrowers can actually repay the money1. What I mean is, rates determine the price of credit, but confidence determines whether the credit is offered.
Thus, if bankers are confident that individuals will repay these debts, they’ll keep lending regardless of where rates sit.
And right now, banks have plenty of reasons to remain confident in their .
For instance, corporate profits reached a record nominal annual rate of $4.83 trillion2 in Q2 after jumping $400.9 billion from Q1. Meanwhile, nonfinancial corporate profit margins have been running near 14% to 15% this decade - the highest on record3 and well above the previous peak of roughly 10% in the 1950s.
Such strong profits give companies more cash to service their debts and give banks greater confidence that those loans will be repaid.
That’s the missing piece in the Fed’s rate puzzle.
Even as the long end of the curve has been surging – with the 10-year about 4.80% as of writing this Thursday, September 3rd, 2026 – banks are actually loosening credit.
According to the latest Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS)4:
This can support growth for longer – since credit creates demand.
But on the flip side, it also spurs inflation (new loans = more money sloshing around) which may force the Fed to tighten aggressively later.
The point is - the Fed controls the price of money, but bank confidence controls whether that money keeps moving.
And right now, money is looking easy for big corps.
China's EV exports jumped5 120% in H1 2026 while domestic sales fell 13% as the industry is increasingly selling abroad what it can't sell at home.
When a country's biggest EV maker sells fewer cars at home and more abroad, that’s a global imbalance. Cars that used to compete for Chinese buyers now compete for European, Latin American, and Southeast Asian buyers instead, and they're arriving cheap. That squeezes every automaker in those markets on price, forces some into layoffs or plant closures, and hands governments a stronger case for tariffs.
I’ve written to you about China’s EV overcapacity6 problem for years.
In a nutshell, Chinese automakers built factories, kept production running at full steam, and chased ambitious sales targets. But domestic demand has been too weak to absorb all that capacity.
So, where do the extra cars go?
Well, to the rest of the world.
This is what I call the Export Escape Valve.
When pressure builds inside China’s auto market, exports release it into the rest of the world.
And the latest results show that the pressure has reached a major tipping point.
For example, BYD – China’s largest EV maker - now generates more money outside China7 than within it.
That’s never happened before.
China’s total passenger-vehicle sales fell 21% in July as automakers continued fighting for customers through discounts and rapid model launches.
Such price cuts help move vehicles, but they reduce the revenue and profit earned on each sale.
That’s why they’re targeting foreign markets.
For context, Bloomberg reported that BYD’s Seal U plug-in hybrid starts at €39,900 (about $46,500) in Germany, more than twice the price of the Chinese version in Beijing. Thus, BYD can cover shipping costs, undercut local competition, and still earn more revenue per vehicle.
And while this global outlet is good for China’s economy – it releases pressure onto everyone else.
But here’s where it gets really interesting. . .
Export volume climbed 120% - but overseas retail sales (meaning cars actually sold to a buyer abroad), only climbed 75%. That's a 45-point gap - meaning this is becoming an inventory problem as these cars sit piled up in ports or dealerships.
Because of this, it’s forcing foreign automakers to lower prices, lose market share, cut production, delay investments, and lay off workers.
This then pushes nations to retaliate with tariffs or other measures to try to reduce the influx of cheap Chinese EVs.
But that’s the kindling for a full-on trade war.
Weak demand and low prices in China spur exports. Exports help EV makers recover their profits. Those exports put pressure on automakers abroad. Foreign governments respond with tariffs and subsidies. China retaliates8. And on and on.
The point is - China's home market can't buy what its EV factories are building, so the rest of the world is being asked to absorb it.
And their auto sectors aren’t happy about it.
The BLS9 lowered its March 2026 payrolls by 79,000, with private employment cut by 178,000 and government employment raised by 99,000 - suggesting average monthly job growth during the prior year was closer to 11,000 than the 17,600 initially reported.
The latest revision is relatively small - but the pattern of negative prints continues. Investors and policymakers make decisions using early payroll estimates, while the more complete data arrive months later. Thus, by the time the weakness becomes clear, markets and the Fed may have spent a year reacting to a labor market that was never as strong as it appeared.
How many times can the labor market be revised lower before the market starts to lose faith in all employment data?
See, the monthly jobs report that we see markets react to once a month is designed to be fast. I wrote a whole piece10 about this before, but the gist’s that the BLS surveys businesses, estimates the missing responses, and uses a model to account for companies being born or going out of business.
This gives us a quick look at how the U.S. labor market is.
But it’s still just an estimate.
The key data shows up months later when the BLS checks that survey against the Quarterly Census of Employment and Wages.
This slower report uses state unemployment-insurance tax records covering nearly every U.S. job.
And once again, the real balance was much lower.
The preliminary benchmark revision found 79,000 fewer payroll jobs in March 2026 than first reported - marking the seventh time in eight years that revisions were negative.
Now, that’s only 0.1% of employment and smaller than the average absolute revision over the past decade.
But the point is economists expected payrolls to be revised up by 183,000.
Said another way, that’s a 262,000-job gap between expectations and reality.
The weakness was also concentrated in the private economy. Private payrolls were marked down by 178,000 while a 99,000 increase in government employment softened the total decline.
And this keeps happening – over and over again.
Taken together, that’s nearly 2.5 million fewer jobs than initially reported.
Clearly, the way the BLS calculates its jobs data needs fixing - because these have been huge misses with the pattern persisting since 2019.
But for markets, the danger is the lag effects.
Payrolls can appear robust even as the economy is already losing momentum - giving investors a misleading signal.
By then, markets may have spent months pricing a labor market that only existed in the first look – only to get caught offside when the weaker reality finally appears.
Think of it like a rubber band.
The longer markets stretch around an overstated jobs picture, the harder the snap can be when markets reprice.
And right now, that rubber band looks pretty damn tight.
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