Absent Federal Reserve interventions, increased lending by commercial banks is by far the most important driver of U.S. money supply growth. Hence, when the loan growth declines the money supply growth rate will be lower than otherwise as a result. This has important implications for the business cycle since an expanding money supply growth rate drives the upward swing of the cycle while a declining one triggers the downswing (e.g. see The Austrian theory of the business cycle).
Starting toward the end of October last year, the loan growth rate started falling regularly every week on a year on year basis. In recent weeks, the growth rate has plunged to just north of 5%, a drop in the growth rate of more than 35% (2.8 percentage points) compared to the January 2015 to October 2016 average.
U.S. Banks year on year lending growth: January 2015 to February 2017
These large drops in the growth rate are of great economic importance as those businesses and projects dependent on credit might now find it more difficult to attain the necessary funds. Also, though not noticeable quite yet, the money supply growth rate will likely start falling more over coming weeks as a result which affects everything from corporate sales and earnings to interest rates and prices in general. Since declining loan growth by commercial banks now seem to have become a trend, this could very well also indicate this credit cycle is fast approaching the end and signal the onset of yet another financial crisis.
U.S. Banks year on year lending growth: January 1974 to February 2017