Chart 1: C&I Loan Slowdown Paints a Misleading Picture...

Data Source: Federal Reserve Board H.8 Release (Haver Analytics)

Vertical Axis: Annualized Percent Growth in C&I Loans Held by Domestically Chartered Commercial Banks (Inflation-Adjusted Using GDP Deflator) (Scale= -20% to 15%)

Horizontal Axis: Number of Quarters Before(-)/After(+) the Beginning of the Recession (Scale=-8 to 8)

The blue line represents a trend in annualized growth in real C&I loans held by domestically chartered commercial banks (hereafter C&I loans) from eight quarters before the 1990-91 recession to eight quarters after the beginning of the recession. Three quarters before the recession, C&I loans contracted by 1.3 percent, and began a long downward trend, which extended for nearly three years. Four quarters after the beginning of the recession, C&I loans fell by 12.6 percent. Two years after the recession began, C&I loans continued to contract, falling by 7.2 percent.

The red line represents an annualized growth in C&I loans from eight quarters before the current recession to two quarters after the beginning of the recession. C&I loans grew at a robust rate till three quarters before the recession. C&I loans grew by 1 percent before the recession, and then declined sharply as the economy entered a recession. Two quarters into the recession (the fourth quarter of 2001), C&I loans declined by an annualized rate of 11.1 percent.