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Lending standards signal

If you want to know whether the US is in, or heading into an economic recession, a good indicator is banks lending standards. If banks continue lending, chances of having a recession are low, particularly when it comes to small firms, responsible for the majority of employment in the country. As you can see in the chart below, about a third of domestic banks in the US are tightening their lending standards, which means it is more difficult for firms to get a loan. Notice also that historically when this indicator reaches 40% or more, the economy typically falls into recession.


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