A month or two ago, some macro types were in a bit of a lather about weak business credit growth. They warned it meant the wheels might be coming off the economy.
I found the business credit slowdown striking, but not for the conventional / bearish reason. As Jason Benderly of Applied Global Macro Research has explained convincingly, at this stage of the cycle, with credit-financed spending (basically on all forms of durables) well off the lows, credit should again tend to outpace nominal GDP growth. And yet recently it has not been doing so, at least by much.
The explanation of that, besides inevitable minor slippage in any macro perspective, would seem to be largely transitory weakness in inventories, the required stock adjustment in the energy patch, and perhaps some other noisy weakness in capex. It is not something I would be inclined to extrapolate, because I buy what I assume is still Benderly’s view. But more to the point, there was no reason to believe that the credit side should lead.
In my view, the best way to monitor the link from spending to credit involves use of Flow of Funds data or what they now call the quarterly Financial Accounts. Those data are comprehensive and do a good job of isolating who has the liabilities, rather than the assets, whose growth rate can be distorted by definitional changes and securitizations. Benderly makes expert use of them. But they are reported with a long lag, so can’t help much with interpreting the little wiggles, such as we have seen recently.
So take a look at this second- or third-best approach. Regrettably, no correlations or real analysis, but just a picture, at a distance and up close. I show a rough proxy for short-term business credit, defined as C&I loans plus domestic nonfinancial CP outstanding. The data are monthly to April and then (conservative) “estimates” for May, comprising the first week for C&I loans and the second week for CP.
I make nothing of the recent hook higher, which is tentative, lagging and what we should have expected based on a thesis that really tells us little about the outlook for the economy per se. In fact, the underlying tendency for credit not to stay weak is probably marginally negative the economy because it reflects that demand growth is now more dependent on credit growth. Minor point, but just not currently a positive.
 I have not actually seen an update of the AGMR work on this, but durables demand has not collapsed, so I assume the automatic releveraging thesis is still intact.