Bank economists are growing more optimistic about the outlook for credit conditions over the next six months compared to the latter half of 2023, according to the American Bankers Association’s latest Credit Conditions Index released today. Produced by ABA’s Economic Advisory Committee, which includes bank economists from North America’s largest banks, the index reached its highest level in two years. Although still well below the neutral reading of 50, the uptick reflects a moderate increase in optimism among EAC members. (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 report notes that with job growth expected to continue, inflation forecasted to ease toward the Federal Reserve’s 2% target, and three rate cuts expected by the end of the year, the U.S. economy appears to remain well-positioned for a soft landing—though a resurgence of inflation and heightened geopolitical risk are important upside risks to monitor.
The Headline Credit Index increased 7.6 points in the second quarter of 2024 to 26.8, reflecting the ongoing, gradual improvement in optimism among bank economists. The sub-50 reading still indicates that lenders will exercise prudence when extending credit to both businesses and consumers over the coming two quarters.
The Consumer Credit Index rose 11.7 points to 23.2 in Q2, improving for the second consecutive quarter. 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—for which no EAC members expect improvement over the next six months—rather than credit availability.
The Business Credit Index improved 3.4 points in Q2 to 30.4, the highest level in two years. Though the majority of EAC members expect business credit quality to deteriorate over the next six months, several members expect availability to improve. The sub-50 reading indicates that overall credit conditions for businesses are likely to weaken over the next two quarters.
