Macroeconomic analysis is not about finding indicators and mindlessly listening to them. The game is difficult because the world is always changing. There might be a reason to discount (attribute less importance on) an indicator even after it has had a great track record of forecasting results. The better the indicator's track record, the better the argument needed to dethrone it. As you can see, macroeconomic forecasting used for investing is all about analyzing the strength of arguments just like investing in individual companies. The best mindset to analyze situations correctly is to avoid bias. If you hear a really great argument, don't ignore it because it can save you a lot of money. Saving money and avoiding being wrong are just as, if not more, important as finding winners and being right.

C&I Lending Indicating A Recession

Commercial and industrial lending growth is weak which is a sign the economy is headed for a recession. Banks lending to businesses is the lifeblood of the economy. This is why when the Fed raises rates, which slows down lending, recessions soon follow. We've looked at the C&I lending growth on a year over year basis. On that basis, a decline is considered a recessionary indicator. It almost flashed a warning sign in November 2017, but growth rebounded. With the current growth rate in the low single digits, a yellow warning flag is being waived.

The chart below is a more dynamic way of reviewing the C&I loan growth. It compares the C&I loans as a percentage of GDP.

Source: The chart below

In the past couple years the percentage has fallen. This indicates a recession should already be underway or one is coming shortly. Considering the fact that the economy is not near a recession according to various metrics such as the leading indicators, GDP, and labor market data, this indicator needs to be reviewed further. It has been wrong, and has suggested the same story for over a year now without a recession ensuing.