By
Derek Hamilton
June 18, 2024
Up to this point, our long-standing recession call has not come to fruition. Currently, some indicators, such as bank lending standards, suggest the odds of a near-term recession may have receded.
Today’s chart shows real gross domestic product (GDP) growth along with bank lending standards taken from the Federal Reserve’s Senior Loan Officer Survey, which is a quarterly survey of loan officers at 80 domestically chartered banks, covering lending standards and demand for various types of business and consumer loans. The results of that survey have been used to create an economy-wide measure of lending standards. As you can see from the chart below, lending standards typically lead GDP growth by roughly two quarters.
The deterioration in lending standards over the last few years has not led to a recession, which we believe was prevented by the sizable amount of government stimulus and liquidity injections following the pandemic. Looking ahead, it strikes us that lending standards have improved, signaling that downward pressure on the economy from the banking sector is starting to wane. Outside of the pandemic, lending standards have never been on an improving trend before a recession even begins.
Going forward, we will watch the progression of this closely to see if it continues to improve or begins to deteriorate again. Even if we do not experience a recession in the near future, we would remind investors this economy remains fragile given the current stage of the business cycle, which we plan to discuss in a future piece.
US real GDP and bank lending standards
Sources: Macquarie, Macrobond, U.S. Bureau of Economic Analysis (BEA), Federal Reserve.
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