ABA: Bank economists see weakening credit conditions through end of 2024

Credit quality and availability will weaken over the next six months for both consumers and businesses, according to the latest Credit Conditions Index from the American Bankers Association’s Economic Advisory Committee, released today. The committee, which includes the chief economists from North America’s largest banks, forecasted that consumer spending will likely slow later this year and next year as wage growth cools, pandemic-era savings dwindle and student loan repayments restart. Business investment is expected to grow at just a 1% annualized rate over the next year, although financial stress remains relatively low, and resilient consumer demand has boosted business cash flow.

  • The Headline Credit Index fell 2.8 points in the fourth quarter to 4.5, reflecting a consensus among bank economists that credit market conditions will continue to weaken over the next two quarters. 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.
  • The Consumer Credit Index dropped 6.5 points to 1.8 in Q4. All EAC members expect consumer credit quality to regress toward historic norms in the next six months, and nearly all members expect credit availability to fall as well.
  • The Business Credit Index improved marginally by 0.9 points in Q4 to 7.1. As a group, most EAC members expect both business credit availability and quality to worsen, though some members anticipate little change in quality and availability. Overall, the sub-50 reading indicates that credit conditions for businesses are likely to weaken over the next two quarters.

“Top bank economists serving on our Economic Advisory Committee are forecasting weak growth in household spending and business investment over the next four quarters before a modest pickup in the second half of next year,” ABA Chief Economist Sayee Srinivasan said. “Accordingly, ABA’s latest Credit Conditions Index indicates that banks will continue to exercise greater caution in lending decisions until at least the end of the year.”