Corporate lending directly reflects business cycles and is strongly linked to investment activity.
Historical Patterns of Lending and Economic Crises
Historically, whenever lending to non-financiers in the U.S. declined by 3% or more in 6 months for at least 20 weeks, a recession or crisis inevitably occurred. This pattern occurred in 1975 - 1976, 1991 - 1993, 2001 - 2003, 2008 - 2010, and in 2020. The current situation warrants attention as well.
Corporate lending has been declining for 23 consecutive weeks at a rate of 2 - 3% over 6 months. This trend is confirmed by the industry, which is now experiencing a "zero" or negative change in annual lending rates.
Lending is typically the fastest indicator, with the credit impulse changing first, followed by investment activity (also known as orders in the industry).
From December 12 to December 19, the average annual growth rate of corporate lending in the US was 6.9%. Comparing 2020 to 2021 doesn't make much sense, as nearly 30% of corporate lending statistics consisted of one-time loans guaranteed by the government, totaling 850 billion, received from March to May 2020 and quickly repaid.
Corporate lending experienced significant growth in 2022, with a 13.1% increase, largely due to businesses using bank credit to compensate for the closed window of open market funding through bond borrowing, addressing cash flow gaps.
Corporate Lending in 2023
From early 2023 to November 8, 2023, corporate lending declined by 2.9% (all figures are nominal). However, the rate of contraction has slowed to zero since August - September.
While the current contraction, which is "only" 3.5% from the peak reached in March 2023, may not seem significant when compared to the 25% contraction seen between 2008 and 2010, it's important to account for inflation.
Conclusion
In conclusion, the impact of high-interest rates will become more pronounced as the margin of safety diminishes and business profit margins decline. Credit and industrial production data indicate that the carryover effect might not be as swift, but the impact is indeed being realized.