Another Bump Higher

In one of our recent updates on the weakness in the manufacturing sector we have mentioned the surge in the sum of charge-offs and delinquencies of commercial and industrial loans at US banks (hat tip to our friend BC, who inspired the chart below). As we were arguing at the time, this is a sign that inflationary US bank credit expansion to businesses will likely continue to stall and as a result US money supply growth should continue to decelerate.

It turns out that this particular growth rate has recently increased further:

Growth in charge-offs and delinquencies in commercial and industrial loans (black line, left hand scale) continues to accelerate – in spite of the fact that the Federal Funds rate (red line, rhs) has officially not even been hiked yet – click to enlarge.

What makes this chart so interesting is that similar accelerations in charge-offs and delinquencies have previously occurred shortly before recessions, whereby “shortly” is an elastic term: the lead times are obviously varying from case to case. Noteworthy is also the speed of the recent acceleration in this trend. We don’t think this is a good sign for the US economy.

Transportation Sector Woes

Note in this context also that the economically highly sensitive transportation sector has recently been mercilessly stomped on in the stock market. This is a sector in which stock prices are now clearly following the worrisome deterioration in fundamentals.

The Dow Jones Transportation Average has once again broken through technical support levels (there was both lateral and trend-line support at the 8,000 level) – click to enlarge.

We have first discussed the increasingly suspect situation of the transportation sector back in July of this year (see: “Transportation Sector in Trouble – What are the Implications?” for details). In the meantime, things have gone from bad to worse, as international trade data, as well as data from railroads and trucking companies confirm (see also the recent sharp slump in rail car orders).