If credit is tightened, this ultimately leads to an economic downturn. The chart below shows whether large and medium-sized banks are tightening lending. Because when credit is tightened, the economy slows, and vice versa, it is plotted inversely, and because it only affects the economy with a lag, it has been plotted with a nine-month lag. So, the rise in the number of banks tightening credit since Q3 last year will be reflected in a fall in economic activity in Q3 this year, and has been plotted accordingly. The economy should start to decline from next month, and this should start showing up in more than just shorter-leading indicators like the ISM and PMI and regional Fed surveys, such as employment, GDP, retail sales, etc.
Note how an external (exogenous) event, the Covid pandemic, affected the lags.
I don't use the credit tightening indicator in my US leading index, because it is quarterly, so it is an additional independent pointer towards an imminent recession.
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