![]() These positive factors don't exactly scream "recession." A popular quip last year was that "housing is the business cycle" or that "housing is the quintessential leading indicator." Well, housing is clearly accelerating. As evidence, bank loans as a percentage of GDP is roughly equal to where it was in 2016, meaning increased debt has not been the driver of activity for roughly seven years. ![]() Americans received sizable pay raises and plenty of pandemic stimulus that they could lean on - not needing to charge everything to the credit card. This disconnect between lending and the actual performance of the economy could be because the post-pandemic cycle is being driven by higher incomes instead of increasing credit balances. But that doesn't seem to have put a dent in the economy, which has generally performed ahead of expectations during the same period. Second, lending standards on loans for small, medium, and large businesses have been tightening for the past four quarters. For all we know, the slowing in bank lending is a response to the slowdown in growth last year and tells us nothing about the future. I think there are a couple of issues with this line of thinking.įirst, bank lending is a lagging indicator: The growth rate of money loaned out tends to peak when the country is already in a recession and bottom out after a recovery has already started. As this spigot of money gets cut off, the argument goes, retail spending and business investment will drop off - cutting off the main driver of economic growth. The data shows that banks are increasing their standards of who qualifies for a loan, meaning fewer people and businesses are getting access to credit. One of the popular indicators for recessionistas is the slowdown in bank lending. Despite the moving goalposts, it's important to get a sense of the bears' current arguments to better understand why the calls for economic doom are overblown. First, it was the spike in food and energy prices, then it was the housing market, and now it's "long and variable lags" from rate hikes that many of the same people said the economy couldn't handle in the first place. Over the past year, Wall Street pessimists' reasons for an approaching recession have shifted. The economic doomsday clock has been reset. Given the increasing number of reasons to be upbeat on the US economy, it's time for the recessionistas to admit defeat. And there's only so long one can keep claiming that the recession is just six months away. ![]() Housing picking up? It's only because inventory is low.ĭespite the year-plus in which analysts have been arguing that a recession is imminent, none of the arguments behind the predictions stand up to scrutiny. Rally in US equity markets? We had a big rally in mid-2008, too. Strong jobs growth? It's a late-cycle sign that the end is nigh. This stubbornness helps explain why Wall Street is having an exceptionally hard time letting go of the idea that a recession is just around the corner.Īs the forecasts for recession keep failing to come true, the explanations for this delay are always explained away. They don't like to admit when they're wrong, and even as the evidence against them piles up, many stick to their guns. ![]() Wall Street analysts and economists have always had a tendency to fall in love with their forecasts. Account icon An icon in the shape of a person's head and shoulders. ![]()
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