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By New_Deal_democrat November 10, 2016 10:50 am
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Two long leading indicators continue to rate caution

We've had two economic releases this week that are both recent creations, and both of which have merit as long leading indicators: the Senior Loan Officer Survey, and the Labor Market Conditions Index.  The former has only an 18 year history, and the latter is a recent aggregation of data that goes back 50 years.  As a result, while both have merit, both also have to be taken with a grain of salt.



As of this week's releases, both also are consistent with "Indian Summer," a decent spate of economic growth later in the expansion.



First, here's the Labor Market Conditions Index, showing its entire 50 year (backdated) history:







The Index is aggregated such that in the past, it has had a negative reading for about a year before the onset of a recession -- as well as a few false positives (1985, 1995, and 2002). Note that most often this index has fallen to -10 or worse before the onset of a recession.



Here is a close-up on the last five years:







The LMCI has been *slightly* negative for most of this year, but September's reading was positive.



Now let's turn to the quarterly Senior Loan Officer Survey.  The below graph shows that net tightening of credit standards (a reading above zero) has happened well before the onset of the last three recessions (how long before the 2001 recession is unknown):







This had been negative as to loans to both large and small borrowers since the last quarter of 2015, but as to small borrowers loan standards actually relaxed very slightly in the third quarter.



I would characterize both of these indicators as flashing yellow at present, since both have been negative for most of this year, but the most recent reading is partly or wholly positive.  In short, late cycle, but no recession imminent, and a spot of Indian Summer.

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