No Credit. No Economy.

“The great American consumer deleveraging continues,” our colleagues at The 5-Minute Forecast observed yesterday. “The Fed announced that consumer credit shrank for a record ninth month in a row in October.”

Consumer credit, as we all know, drives a big chunk of consumer spending, which drives a big chunk of the American economy. Ergo, no credit; no economy.

But consumers are not the only borrowers between the Atlantic and the Pacific who contribute to economic activity. Commercial and industrial (C&I) borrowers also play a large role. The dots are pretty easy to connect here: When C&I lending is growing, businesses are expanding. And that means rising profitability and employment. When C&I lending is falling, however, businesses are contracting.

This is the unfortunate condition that now prevails.

Commercial and Consumer Credit

The combined total of C&I and consumer loans outstanding contracted by nearly $300 billion during the first nine months of this year. And this dismal trend shows absolutely no sign of reversing itself, as Douglas French, explains in his column, The Credit Crunch Continues.

The Daily Reckoning