While bank economists expect credit conditions to continue to weaken compared to the extremely strong position of the last few years, their outlook for the first half of the year is notably more optimistic, according to the latest Credit Conditions Index from the American Bankers Association’s Economic Advisory Committee, released today. The committee includes the chief economists from North America’s largest banks.
The index improved to its highest level in more than a year during the first quarter of 2024 as EAC members expressed cautious optimism about the prospects for the U.S. economy this year. With job growth expected to continue, inflation forecasted to linger above the Federal Reserve’s 2% target and interest rates expected to trend lower later this year, the near-term outlook for U.S. consumers remains positive, according to the EAC. At the same time, credit quality and availability remain areas of concern, particularly for consumer lending. Overall, with economic growth predicted to slow this year, banks are expected to continue to exercise caution when extending credit, but to a lesser degree as recession concerns fade away.
- The Headline Credit Index increased 14.8 points in Q1 to 19.2, reflecting a general improvement in optimism among bank economists. 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 sub-50 reading indicates that lenders are likely to continue to exercise caution when extending credit to both businesses and consumers over the coming two quarters.
- The Consumer Credit Index rose 9.8 points from a series low to 11.5 in Q1. Though the index improved modestly, only one EAC member expects consumer credit availability to improve in the next six months, and no members expect consumer credit quality to improve. Overall, the sub-50 reading suggests that credit conditions for consumers will continue to weaken over the next two quarters, driven mostly by concerns about credit quality rather than credit availability.
- The Business Credit Index improved 19.8 points in Q1 to 26.9. Though the majority of EAC members still expect business credit quality to deteriorate over the next six months, nearly half expect business credit availability to improve. Overall, the sub-50 reading indicates that credit conditions for businesses are likely to weaken over the next two quarters.
“ABA’s latest Credit Conditions Index indicates that the economy is on solid footing, and banks intend to continue prudently extending credit to both consumers and businesses,” ABA Chief Economist Sayee Srinivasan said. “The prospect of lower interest rates later this year should boost confidence and credit demand to sustain business growth. However, banks will remain vigilant should signs of unexpected weakness develop.”
