WASHINGTON — Economists at many of the nation’s largest banks are growing more optimistic about the outlook for credit conditions compared to the latter half of 2023, according to the American Bankers Association’s newest Credit Conditions Index released today.
The ABA said the latest summary of its Credit Conditions Index examines a suite of indices derived from the quarterly outlook for credit markets produced by ABA’s Economic Advisory Committee (EAC).
According to the ABA, 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.
Second Consecutive Improvement
“The Credit Conditions Index improved for a second consecutive quarter in Q2 2024, rising to its highest level in two years,” the ABA said. “Although still well below the neutral reading of 50, this uptick reflects a moderate increase in optimism among EAC members.”
The report, issued in advance of the latest Consumer Price Index numbers and forecasts by many analysts that the Fed may temper any plans to reduce rates this year, 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,” ABA Chief Economist Sayee Srinivasan said in a statement. “Banks remain committed to lend prudently to consumers and businesses over the next six months as recession risks decline.”
The Data Points
For the second quarter release, the ABA reported:
- 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 ABA said.
- 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.”
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