The change in the flow of new credit, and lending growth more generally
Whether banks are lending more or less than a year ago; shrinking credit has accompanied every contraction, and the change in new lending leads demand.
Spending on houses, cars and investment is financed by borrowing, so the flow of new credit moves demand before income does. Michael Biggs, Thomas Mayer and Andreas Pick showed in 2009 that it is the change in the flow of new credit, which they called the credit impulse, rather than the stock of debt, that tracks GDP growth, and that recoveries can begin while debt is still falling if the flow stops shrinking. Moritz Schularick and Alan Taylor's history of 14 countries since 1870 found that credit booms are the best single predictor of financial crises, and Atif Mian and Amir Sufi showed that household credit expansions predict weaker growth three to four years later.
The rule on worldstat.us: lending to the private sector, or broad money where lending is not published monthly, growing less than zero over twelve months counts as a contraction signal. Bank loans to euro-area firms and UK broad money are the series available today; the fuller credit impulse for China, which the People's Bank publishes only as monthly web tables, is not yet collected. Credit is a coincident to slightly lagging series in a downturn and a leading one in a recovery, which is why it sits in the Cycle layer while the slower-moving credit-to-GDP gap sits in the Structural layer.
GDP · M4 · coincident · credit-to-GDP gap