U.S. Weeks Away From A Recession According To Latest Loan Data

While many "conventional" indicators of US economic vibrancy and strength have lost their informational and predictive value over the past decade (GDP fluctuates erratically especially in Q1, employment is the lowest this century yet real wage growth is non-existent, inflation remains under the Fed's target despite its $4.5 trillion balance sheet and so on), one indicator has remained a stubbornly fail-safe marker of economic contraction: since the 1960, every time Commercial & Industrial loan balances have declined (or simply stopped growing), whether due to tighter loan supply or declining demand, a recession was already either in progress or would start soon.

This can be seen on both the linked chart, and the one zoomed in below, which shows the uncanny correlation between loan growth and economic recession.

And while we have repeatedly documented the sharp decline in US Commercial and Industrial loan growth over the past few months (most recently in "We Now Know "Who Hit The Brakes" As Loan Creation Crashes To Six Year Low") as US loans have failed to post any material increase in over 30 consecutive weeks, suddenly the US finds itself on the verge of an ominous inflection point.

After growing at a 7% Y/Y pace at the start of the year, which declined to 3% at the end of March and 2.6% at the end of April, the latest bank loan update from the Fed showed that the annual rate of increase in C&A loans is now down to just 1.6%, - the lowest since 2011 - after slowing to 2.3% and 1.8% in the previous two weeks.

Should the current rate of loan growth deceleration persist - and there is nothing to suggest otherwise - the US will post its first negative loan growth, or rather loan contraction since the financial crisis, in roughly 4 to 6 weeks.

An interesting point on loan dynamics here from Wolf Richter, who recently wrote that a while after the 1990/1991 recession was over, the NBER determined that the recession began in July 1990, eight month after C&I loans began to stall. "As such, the current seven-month stall is a big red flag. These stalling C&I loans don’t fit at all into the rosy credit scenario. Something is seriously wrong."

However, it wasn't until loan growth actually contracted, that the 1990 recession was validated.  Well, the US economy is almost there again. And this time it's not just C&I loan growth, or lack thereof, there is troubling.

As the chart below shows, after peaking in late 2016, real-estate loan growth has also decelerated by nearly half, to 4.6%.

More troubling still, after flatlining at nearly double digit growth for much of 2016, starting last September there has been a sharp slowdown in commercial auto loans, whose growth is now down to just a third, or 3%, of what it was a year ago.

While it remains to be seen if C&I loans have preserved their uncanny "recession predictiveness" for yet another turn of the business cycle, the charts above confirm that the US economy is rapidly slowing, and validating the poor Q1 GDP print. Furthermore, one thing is clear: absent a substantial rebound in loan growth, whether for commercial, residential or auto loans, there is no reason to expect an imminent uptick in the US economy. We only note this, because next week the Fed plans to hike rates again. If it does so just as US loan growth contracts, it may be doing so smack in the middle of a recession.

Comments

emersonreturn Mr 9x19 Sun, 06/11/2017 - 11:12 Permalink

actually have a friend who was diagnosed with stage 4 lung cancer, & it has disappeared---for which there is no logical reason, it was inoperable, he did some radiation but left it at that & began to only do things he loved.  he didn't follow any regime, ate whatsoever he wanted, started to build a few things he'd always wanted: one is a russian chapel that completely comes apart in sections so if his kids don't like the location or want to sell that piece of the property they can take it apart & put it somewhere else.  tests, scans, MRIs cannot find a trace.  he doesn't believe it's gone, he doesn't think about it or care, of course his medical team are skeptical & continue to search for traces, but his medical team cannot find a trace in his lungs, prostate, or lymph nodes.  sometimes, 9x19, there really is no explanation.  every year on his birthday he has a giant leaving the planet party, 100s of friends, family & neighbours, this year will be his 8th leaving the planet party.  he always used to say if he had to choose between luck, money, fame or power that he'd choose luck.  seems he chose well.

In reply to by Mr 9x19

greenskeeper carl gatorengineer Sun, 06/11/2017 - 10:05 Permalink

The 'collateral' for all of ths debt is the future productive capacity of this country and its people, e.i. our children and grandchildren. While its not like we haven't been expecting this for a year or 10, it is kinda surprising that people are finally unable to borrow money. After all, this is happening after new rules were made with regard to credit scores that gave many people a magical overnight credit boost, making them appear to be a better credit risk thatn they actually are. So, even with subprime borrows recieving an undeserved credit boost, this is STILL happening.

In reply to by gatorengineer

GUS100CORRINA War_is_Peace Sat, 06/10/2017 - 21:34 Permalink

So with loan growth stalling, what does the real economy look like? To get the answer, we go to SHADOWSTATS to get the answer. The report below will show that OBAMA and his economic team were LIARS and DECEIVERS. President TRUMP, while optimistic at times, has inherited a REAL KEYNESIAN ECONOMIC MESS.=======The latest from John Williams’ www.shadowstats.com“No. 890: May Employment, April Construction Spending and Trade Deficit Revisions”– Trade-Deficit Benchmarking Showed Deeper Deficits 2014-to-Date, with Implications for Downside Benchmark Revisions to the GDP – Second-Quarter 2017 Real Merchandise Trade Deficit Is on Track for Worst Showing Since Second-Quarter 2007 – In Uptrending, Low-Level Stagnation, April Freight Index Gained Year-to-Year, Holding Shy of Recovering Pre-Recession Peak by 12.6% (-12.6%) – May Real-World Employment Conditions Continued in Annual Decline, at a Pace Not Seen Since the Depths of the 2009 Collapse – Monthly Payroll Gains Slowed on Top of Downside, Prior-Period Revisions – Slowing, Unadjusted Year-to-Year Payroll Growth Held at Low Levels Common to Periods Preceding Economic Recession – May 2017 Unemployment: U.3 Declined to 4.3% from 4.4%, U.6 Fell to 8.4% from 8.6% and the ShadowStats-Alternate Eased to 22.0% from 22.1% – Labor Numbers Out of Balance: April 2017 Headline Unemployment of 4.3%, Lowest Since March 2001, Coincided with Weakening, Near-Historic Lows in the Participation Rate (Labor Force/Population) and Employment-to-Population Ratio – In Contrast, March 2001 Headline Unemployment of 4.3% Coincided with Participation Rates and Employment-Population Ratios Just Off Historic Highs – Real Construction Spending Remained 21.3% (-21.3%) Short of Recovering its Pre-Recession Peak, Still Holding in Low-Level Stagnation – Money Supply M3 Annual Growth Rose to 3.6% in May, versus 3.4% in April

In reply to by War_is_Peace

ThirteenthFloor Ajax-1 Sun, 06/11/2017 - 09:22 Permalink

A poker game, ALL the chips are in the pot, ALL OF THEM, and all the hands are shit, then a dark clothed player stands, calls and takes the entire pot with a single pair of nines.

Then he looks up...."please allow me to introduce myself, I am a man of wealth and taste, been around for long long year, stole many a mans soul and faith. I was around when Jesus Christ had his moment of doubt and pain. Made damn sure the pilate washed his hands and sealed his fate. Pleased to meet you, hope you guess my NAME, but what's puzzling you is the nature of my game."

He turns to leave.... laughs...'I watched with glee, while your kings and queens FOUGHT for ten decades for the gods they made...'

In reply to by Ajax-1

fattail War_is_Peace Sun, 06/11/2017 - 09:32 Permalink

Commercial RE is headed to the crapper.  So much excess retail space, empty malls, empty office buildings.  That was always the main driver for commercial lending; housing the cubical drones, and then selling them cheap plastic landfill from china in a strip mall on their hour commute in their financed vehicle to their financed home from work.  Telecommuting and amazon have taken care of that.  The self driving car service from GM and Ford will eliminate the auto loan.  Demographics- boomers retiring and living on fixed incomes that are eaten by inflation and millenials who are laden with debt and have been forced into deleveraging when they historically would be leveraging up to go car and house shopping.  What's the consequence of negative credit growth, why credit contraction, falling asset prices and deflation.  Unless the currency suffers a self inflicted catastrophe.  Place your bets.

In reply to by War_is_Peace

kahplunk Mr. Universe Sat, 06/10/2017 - 21:37 Permalink

So that keeps you from what exactly trying to see your point here. If you don't like FRN simple go to a coin shop and convert I do it all the dam time. All the crying is getting old Jessus Christ you fucking looser wake up and go to work and be fucking smart about it.  Down vote me more it might make you feel better about your pathetic lives.

In reply to by Mr. Universe