As the stock market continues to grind higher and investors become more complacent, we are reminded by this “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.