Credit conditions are expected to improve for both small businesses and consumers for the first time since 2022, according to the American Bankers Association’s latest Credit Conditions Index.
The headline credit index more than doubled in the fourth quarter — 56.9 from 28.2 in the third quarter, its fourth straight month of improvement. The Credit Conditions Index includes indices from the quarterly outlook for credit markets by ABA’s Economic Advisory Committee of chief economists from North America’s largest banks. Readings above 50 indicate bank economists expect business and household conditions to improve.
More than half of economists expect the availability of consumer credit to improve since late 2021, as the related index increased to 58.3 from 35.8 in the third quarter. The business credit index increased 20.6 points to 55.6 in the fourth quarter.
The share of respondents expecting credit quality to weaken fell to 44 percent from 80 percent, while the share anticipating credit quality to improve increased to 22 percent from 0 percent.
Economic Advisory Committee members said there is a 30 percent chance of a recession next year, up from 25 percent in June. Core inflation remains higher than usual but continues to ease, according to the ABA. Employment has slowed but remains higher than the economy’s replacement rate.
The Federal Open Market Committee’s decision to cut interest rates 50 basis points in September — and the probability of additional reductions in the coming months — should lower borrowing costs and improve credit availability, said ABA Chief Economist Sayee Srinivasan.
“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,” Srinivasan said.