Bank economists expect credit conditions to soften over the remainder of the year due to the economic headwinds faced by consumers and businesses, according to the latest Credit Conditions Index released today by the American Banker Association’s Economic Advisory Committee. The EAC includes chief economists from North America’s largest banks. Readings above 50 indicate that, on net, bank economists expect business and household credit conditions to improve, while readings below 50 indicate an expected deterioration.
According to the third quarter 2023 report, most EAC economists continue to believe that credit quality and availability will weaken over the next six months, and no member of the committee expects either metric to improve this year. While credit quality and availability have been remarkably resilient since the onset of the pandemic, recent index readings foretell softening credit conditions for both consumers and businesses. In response, EAC members expect that lenders will grow more cautious, particularly given elevated interest rates.
- The Headline Credit Index improved slightly in Q3 to 7.3, increasing 1.5 points, while remaining near a post-pandemic low. The sub-50 reading indicates consensus among bank economists that credit market conditions will weaken. As a result, banks are expected to exercise caution when extending credit to both businesses and consumers over the remainder of the year.
- The Consumer Credit Index improved 2.6 points to 8.3 in Q3. No EAC members expect consumer credit availability or quality to improve in the next six months and most expect both to worsen. The sub-50 reading indicates that credit conditions for consumers are likely to weaken over the next two quarters.
- The Business Credit Index improved marginally by 0.5 points in Q3 and now stands at 6.3. As a group, EAC members are slightly more pessimistic regarding business credit availability than quality, though both metrics are expected to worsen. The sub-50 reading indicates that credit conditions for businesses are likely to weaken over the next two quarters.