ABA Report: Bank Economists Continue to Grow More Optimistic About Credit Conditions

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.

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 (EAC). 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.

The Credit Conditions Index improved for a second consecutive quarter, rising to its highest level in two years. Although still well below the neutral reading of 50, this uptick reflects a moderate increase in optimism among EAC members. 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 latest reading of ABA’s Credit Conditions Index reflects an uptick in optimism among bank economists as consumer spending and the labor market remain solid,” said ABA Chief Economist Sayee Srinivasan. “Banks remain committed to lend prudently to consumers and businesses over the next six months as recession risks decline.”

For the second quarter release:

• The Headline Credit Index increased 7.6 points in Q2 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.

Read the full report with detailed charts and a discussion of the broader economic context.

About the Credit Conditions Index

The ABA Credit Conditions Index is a suite of proprietary diffusion indices derived by the American Bankers Association from surveys of bank chief economists from major North American banking institutions. Since 2002, the bank economists have forecasted credit quality and availability for both businesses and consumers, indicating whether they expect conditions to improve, hold steady, or deteriorate over the ensuing six months. Readings above (below) 50 indicate that, on net, these expert business analysts expect credit market conditions to improve (deteriorate). Input from the bank economists is equally weighted in the indices. This data will remain anonymous, but historical index values are available upon request.

Answers to Frequently Asked Questions about the ABA Credit Conditions Index can be found in an Appendix attached to the outlook. This report and all previous reports can be found at https://www.aba.com/news-research/research-analysis/aba-credit-conditions-index.