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Credit: Normal

How hard it is to get loans and how many borrowers are falling behind. Credit stress is close to its 20-year middle.

Score 0.40 on a −2 to +2 scale: the average of 17 indicators, each placed by where today sits in its last 20 years. Indicators where a higher number means less credit stress are flipped.

Indicators

Connections

• Fed funds ratepressuresLending standards, small firmsData agrees

  Higher rates usually come with stricter loan terms. Typical lag: 1-3 quarters. Strongest match 5 quarters later (correlation 0.34, 119 observations since 1996).

• Lending standards, small firmspressuresBusiness applicationsData disagrees

  Harder credit can slow new business formation. Typical lag: 1-4 quarters. The strongest pattern runs the other way: correlation 0.21 3 quarters later (73 observations since 2007).

• High-yield credit spreadsignalsNasdaq CompositeUntested

  Widening spreads signal stress, usually alongside falling stocks. Typical lag: same period. Not enough overlapping history to test yet.

• High-yield credit spreadleadsUnemployment rateUntested

  Credit stress tends to come before layoffs. Typical lag: 3-9 months. Not enough overlapping history to test yet.

• Unemployment ratedrivesCredit card delinquency rateMixed evidence

  Job losses make it harder to keep up with payments. Typical lag: 1-4 quarters. The strongest pattern runs the other way: correlation -0.45 6 quarters later (122 observations since 1996).

• Credit card delinquency ratesignalsRetail salesData agrees

  Rising delinquencies hint at stretched households and slower spending. Typical lag: 1-3 quarters. Strongest match in the same period (correlation -0.52, 122 observations since 1996).

• Corporate bond spread (Baa minus 10Y)leadsIndustrial productionData agrees

  When companies pay more to borrow, they invest and produce less. Typical lag: 3-9 months. Strongest match 6 months later (correlation -0.57, 363 observations since 1996).

• Corporate bond spread (Baa minus 10Y)moves withNasdaq CompositeData agrees

  Credit stress and falling stocks usually arrive together. Typical lag: 0 months. Strongest match in the same period (correlation -0.54, 371 observations since 1996).

• Lending standards, small firmsmoves withCorporate bond spread (Baa minus 10Y)Data agrees

  Banks and bond investors tend to pull back at the same time. Typical lag: 0-3 months. Strongest match in the same period (correlation 0.64, 124 observations since 1996).

• Credit card lending standardsleadsCredit card delinquency rateData agrees

  When banks cut off credit card access, stretched borrowers can't roll balances and more fall behind. Typical lag: 3-9 months. Strongest match 2 quarters later (correlation 0.60, 116 observations since 1997).

• Credit card lending standardspressuresRetail salesData agrees

  Tighter card approvals take spending power away from households. Typical lag: 0-6 months. Strongest match 1 quarter later (correlation -0.54, 118 observations since 1997).

• Business loan demand, small firmssignalsIndustrial productionData agrees

  Firms borrow when they plan to expand; falling loan demand signals cautious businesses. Typical lag: 0-3 months. Strongest match in the same period (correlation 0.36, 123 observations since 1996).