I see some analysts worrying about weaker credit growth in the business sector.
Earlier this cycle, I would have given that a big Pfffff, because in the early cycle credit growth should systematically lag nominal spending growth, as well explained by Jason Benderly’s automatic deleveraging thesis or the the DB credit pulse perspective, which is very closely linked. I will leave it to my many readers to track that down.
But once the pace of credit-sensitive spending has recovered to normal or above-normal / late-cycle levels (roughly relative to GDP), credit should systematically outpace GDP. I convinced Jason, one day, to call this automatic REleveraging, which he did. So point to the worriers.
HOWEVER, those insights apply mostly ex-ante. By that, I mean that early cycle you should expect weak credit growth even with recovery, and view that prospect as bullish the recovery itself because it means that the economy can do well without credit, relaxing what might otherwise be a constraint.
And conversely, later in the cycle you should expect stronger credit growth and worry a bit more about credit constraints.
It does not follow from this, though, that the observation of recently weak credit growth is itself negative looking forward. I know this sounds convoluted. Not my fault that the ex-ante / ex-post distinction usually knocks 90% of economists and 100% of journalists off the plot.
Sorry if that sounds arrogant, but fuck it. Don’t care.
I suspect that weak business credit growth reflects a stock adjustment in inventories and the energy patch that has already happened. So unless the credit availability metrics turn south, I would make nothing of this.
And I offer all of this without presenting a shred of evidence. I don’t get paid you know. You should be grateful I do even this.