Potentially Bad News or Simply News That Doesn’t Matter?
As the stock market continues to grind higher and investors become perhaps more complacent, let’s take a look at one data point that has remained a “stubbornly fail-safe marker” of economic contraction since 1960.
Every time Commercial & Industrial (C&I) loan balances have declined or stagnated—a recession was already in progress or was imminent. This can be seen in the following graphic, .from Zero Hedge using Federal Reserve data.
On a year-over-year basis, after growing at a 7% year over year pace at the beginning of 2017, the latest bank loan update from the Fed showed that the annual rate of increase in C&I loans is down to just 1.6%–its lowest since 2011.
Should the rate of loan growth deceleration persist, in roughly four to six weeks the U.S. would post its first year-over-year loan contraction since the financial crisis. This graphic illustrates how steep the decline has been.
So, let’s ask the question that must be asked.
Is this cause or coincidence?
Did the decline of commercial loan balances cause the recession or was it coincidental?
I don’t know and I don’t claim to be an expert in this area at all but when I look at the first chart, I do not see cause, I see coincidence.
Maybe I’m totally wrong on this, but I’ll make my decisions based on a more broad spectrum of economic indicators and what the investment markets are actually doing.