Consumer credit, released last Wednesday, contracted $7.5 billion in November. The series represents consumer loans excluding mortgages and totals $5.1 trillion. It is rare for it to decrease outside of recessions. A smaller amount of credit represents less consumer spending and “deleveraging” which weighs on economic growth. It will be interesting to see if it continues. More important than the monthly figure, is the year-over-year trend. This is down to 1.6%, having steadily decreased since May of 2022 (see red arrow in chart below.)

Tracing this 1.6% level back across the long history of the indicator (dotted black line), shows that it is associated only with recessions; usually towards the end of them. The three “soft landings” in the last 75 years troughed well above this level. The level now is while consumers still have a favorable expectation of the future and stocks are strong. How far does it drop when they don’t?