Bank Economists: Credit Conditions Expected to Improve for Both Consumers and Small Businesses for First Time Since 2022

For the first time in nearly three years, lending conditions are expected to strengthen over the next six months for both consumers and businesses, 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 climbed above its neutral reading of 50 for the first time since early 2022, indicating that bank economists expect lending conditions to improve over the next six months. The overall trajectory of the economy has generally followed the EAC’s expected path: core inflation remains slightly elevated but continues to ease, and employment growth has slowed but remains above the economy’s replacement rate. EAC members pegged the probability of a 2025 recession at 30% (up slightly from 25% in June), but the consensus view is that the economy is on track toward a soft landing.

“ABA’s latest Credit Conditions Index reflects an economy that is on track for a soft landing, or even a no-landing,” said ABA Chief Economist Sayee Srinivasan. “The Fed’s decision to cut interest rates by 50 basis points last month, combined with the likelihood of additional cuts in the months ahead, should benefit consumers and businesses by lowering borrowing costs and improving credit availability. Although the economy may slow in this year’s fourth quarter due to heightened uncertainty regarding geopolitical risk and the upcoming election, bank economists are generally optimistic about economic conditions in 2025.”

For the fourth quarter release:

• The Headline Credit Index increased 28.2 points in Q4 to 56.9, the highest reading since 2022 and the fourth consecutive quarter of improvement. The above-50 reading indicates that overall credit conditions are expected to strengthen over the next six months, driven by improved readings for both consumer and business credit.
• The Consumer Credit Index improved 35.8 points to 58.3 in Q4. For the first time since late 2021, more than half of bank economists expect consumer credit availability to improve over the next six months. Moreover, the share of respondents expecting credit quality to deteriorate fell from 80% to 44%, while the share expecting credit quality to improve rose from 0% to 22%. The 36-point jump represents the second-largest quarterly gain in more than two decades.
• The Business Credit Index improved 20.6 points in Q4 to 55.6. Most bank economists expect both business credit quality and availability to remain steady over the next two quarters. Recent movement in the index is encouraging, and the above-50 reading points to strengthening credit conditions for businesses over the next six months.

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 weighted equally 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.