ECRI - Economic Cycle Research Institute

Professional Report Excerpt

Credit Woes Ahead

Since the epicenter of this recession continues to be the housing-related credit crisis, it is worth examining the outlook for credit growth in the context of the Fed easing that has already occurred. For this purpose, we look at the Leading Credit Index which is designed to anticipate cyclical turns in Nonfinancial Corporate Debt growth.

As the chart shows, downturns of the current magnitude in the LCrI have never occurred except before recessions. However, the downturn in corporate debt growth has only recently begun, suggesting that it has some way to go since, typically, corporate debt growth bottoms out shortly after the recovery begins.