February 28, 2023
After exhibiting weakness at the end of 2022, recent economic data have been more mixed for the US economy. Several factors, including warmer weather and a jump in Social Security payments, could be temporarily boosting the economy. Even so, underlying indicators that tend to be more sticky are telling a different story. One such indicator is the US Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS) on bank lending practices, which is released four times per year. The SLOOS is a survey that polls senior loan officers from roughly 100 banks in the US. The survey measures the tightness of lending standards and strength in loan demand for several categories, including loans for commercial and industrial companies, real estate, and consumers.
Historically, lending standards have been an important indicator for future demand in some key economic sectors. We find that aggregating the SLOOS data into a single indicator can be helpful in forming a broader economic view. The chart below shows aggregate lending standards for the US economy (inverted on the right-hand scale), along with real gross domestic product (GDP) growth. As you can see, lending standards have tightened aggressively. In fact, the economy has always experienced a recession whenever lending standards have been this tight. We continue to expect this time to be no different.
US real GDP growth and bank lending standards
Note: Shaded area on the chart indicates a period of recession.
Sources: Macquarie, Macrobond, and US Bureau of Economic Analysis (BEA).