Bank loans are a lagging indicator

Worried that the unwillingness of banks to make loans will stifle the recovery? Take some solace in the fact that loans are a lagging, not a leading indicator of employment. The graph below shows the year-over-year percentage change in commercial and industrial loans by US banks (adjusted for inflation) and the year-over-year change in employment. Coming out of recessions, the general pattern is for employment to lead loans, not the other way around. More formally, a quick run through the data shows that employment "Granger causes" loans: past rates of loan growth do not help predict current employment growth, but past employment growth does help predict current loan growth.