Credit spread → Leading index

Common explanation (Cause · opposite direction): Tighter credit holds back investment and hiring.

This issue: Credit spread at 9 (cold), Leading index at 42 (neutral) — at least one is in the neutral range (40⁠–⁠60), so we make no call this issue.

Hot and cold describe position, not good or bad: warm does not mean a fall is coming, and an extreme reading does not mean a quick reversal. We describe history only, with no buy or sell advice.

Where it stands now

Where the two indicators stand this issue

Credit spread: Now 0.93 percentage points. Leading index: Now 100.14.

Tests

Does this link hold up?

Common explanationTighter credit holds back investment and hiringSource: Federal Reserve Board, “Recession Risk and the Excess Bond Premium” (2016).
Tested against our dataAgreement between the positions of Credit spread and Leading index (8-month lag), measured in the direction of the common explanation: −0.02 (an opposite-direction link: the raw correlation is +0.02, and a negative correlation fits, so the sign is flipped). Looking at every 5-year period (shifted one year at a time), the two moved in that direction in 20 of 39. In most periods the two moved the way the common explanation says, but their highs and lows do not line up over the whole history, so overall no relationship is visible.Not visible in our data
Periods when it did not holdAcross 39 5-year periods, out of step in 1982⁠–⁠2002, 2008⁠–⁠2014 and 2015⁠–⁠2024.

History

The two lines, overlaid

Data: Federal Reserve Board (Gilchrist–Zakrajšek spread); Organisation for Economic Co-operation and Development (OECD), Composite Leading Indicators. Positions: our calculation.

Credit spreadLeading index

Limits

What this card cannot tell you

Moving together does not prove that one causes the other.
Links change over time; periods when this one did not hold are listed in full.
This is the historical record, not a forecast.

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