Credit conditions are expected to weaken modestly over the next six months as businesses and consumers adopt a more cautious outlook amid heightened uncertainty, according to the American Bankers Association’s latest Credit Conditions Index released today.
The latest summary of ABA’s Credit Conditions Index examines a suite of indices derived from the quarterly outlook for credit markets produced by ABA’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.
After briefly rising above 50 for the first time in nearly three years last quarter, the ABA Credit Conditions Index fell back below the neutral reading in Q1 2025, signaling expectations of weaker lending conditions amid heightened economic uncertainty over the next six months. Despite the anticipated softening in credit conditions, bank economists continue to expect low unemployment, positive job growth and decent economic growth of around 2% this year.
“ABA’s latest Credit Conditions Index reflects a slowing but still healthy economy, with positive payroll growth, low unemployment and rising real wages indicating continued strength in the labor market,” ABA Chief Economist Sayee Srinivasan said. “At the same time, trade policy uncertainty and the potential for higher prices may dampen near-term economic prospects. Pro-growth tax policy and continued regulatory reforms should counteract some of these factors as the year progresses.”
For the first quarter release:
- The Headline Credit Index fell 15.7 points in Q1 2025 to 41.3, its first decline in five quarters but still its second-strongest reading over the last three years. The downturn was broad-based, as expectations for both credit quality and credit availability weakened. The below-50 reading suggests that overall credit conditions are expected to weaken over the next six months.
- The Consumer Credit Index fell 20.8 points to 37.5, largely due to concerns over credit quality. Half of surveyed bank economists anticipate a decline in consumer credit quality, while the rest expect quality to hold steady. More positively, most respondents expect consumer credit availability to hold steady, which suggests banks are likely to maintain a cautious but stable lending posture over the next six months.
- The Business Credit Index fell 10.6 points to 45.0, as business credit conditions are once again slightly healthier than consumer credit conditions after briefly converging last quarter. Half of surveyed bank economists expect business credit availability and business credit quality to be unchanged over the next six months. Still, with the index slightly below 50, overall business credit conditions are expected to weaken modestly over this period.
