Bank economists are cautiously optimistic about the U.S. economy this year, according to the American Bankers Association’s latest Credit Conditions Index.
The index, which examines a suite of indices derived from the quarterly outlook for credit markets, is produced by the Economic Advisory Committee of chief economists from major U.S. banking institutions. A reading above 50 indicates positive expectations.
Reflecting growing optimism, the headline credit index increased 14.8 points to 19.2, its highest reading in six quarters, which still indicates that lenders will remain cautious in extending credit to consumers and businesses over the next six months. According to the EAC, such caution is expected to fade as recession concerns lessen.
The consumer credit index increased 9.8 points to 11.5 from a record low of 1.8 in the fourth quarter of last year. “Though the index improved modestly, only one EAC member expects consumer credit availability to improve in the next six months, and no members expect consumer credit quality to improve,” according to the ABA.
The business credit index increased 19.8 points to 26.9 from 7.1. The majority of EAC members expect business credit quality to weaken over the next six months, while nearly half project business credit availability to improve.
Inflation is projected to remain above the Federal Reserve’s 2 percent target as interest rates are expected to fall later this year, according to the EAC. Job growth is expected to continue as credit quality and availability remain areas of concern, especially for consumer lending.
“ABA’s latest Credit Conditions Index indicates that the economy is on solid footing, and banks intend to continue prudently extending credit to both consumers and businesses,” said ABA Chief Economist Sayee Srinivasan. “The prospect of lower interest rates later this year should boost confidence and credit demand to sustain business growth. However, banks will remain vigilant should signs of unexpected weakness develop.”