Bank economists expect credit conditions to soften over the remainder of the year due to the economic headwinds faced by consumers and businesses, according to the American Bankers Association’s latest Credit Conditions Index.
No EAC member expects either metric to improve this year, according to the Q3 2023 report released late last week. Recent index readings foretell softening credit conditions for both consumers and businesses. In response, EAC members expect that lenders will grow more cautious, particularly given elevated interest rates.
The Headline Credit Index improved slightly in Q3 to 7.3, increasing 1.5 points, while remaining near a post-pandemic low. The Consumer Credit Index improved 2.6 points to 8.3 in Q3. No EAC members expect consumer credit availability or quality to improve in the next six months and most expect both to worsen.
The Business Credit Index improved marginally by 0.5 point in Q3 and now stands at 6.3. As a group, EAC members are slightly more pessimistic regarding business credit availability than quality, though both metrics are expected to worsen.
“ABA’s latest Credit Conditions Index anticipates that lenders are preparing for weakening economic growth and increasing financial challenges for consumers and businesses as the year progresses,” said ABA Chief Economist Sayee Srinivasan. “At the same time, bank economists expect inflation to continue to ease, reducing the need for additional Fed rate hikes, and that underlying strength in the labor market will provide a buffer for consumers and businesses.”
The ABA Credit Conditions Index summarizes data from the quarterly outlook for credit markets produced by ABA’s Economic Advisory Committee, which includes chief economists from North America’s largest banks.