American Bankers See Weakening Credit Conditions Through End of 2024

Residential News » New York City Edition | By Michael Gerrity | September 28, 2023 7:35 AM ET

Based on the American Bankers Association's latest Credit Conditions Index released this week, U.S. bank economists expect credit conditions to weaken over the next six months.

According to the Q4 2023 report, most EAC economists believe that both credit quality and credit availability will weaken over the next six months for both consumers and businesses:

Among households, consumer spending has been the driving force behind the U.S. economy but is likely to slow later this year and next year as wage growth cools, pandemic-era savings dwindle and student loan repayments restart. Households have increasingly turned to credit cards to support spending, and credit card delinquency rates are now similar to pre-pandemic levels (but well below levels from the 1990s and 2000s).
Among businesses, commercial and industrial lending has fallen for most of 2023, reflecting a "risk-off" posture among many business owners. EAC forecasts reflect this sentiment, as business investment is expected to grow at just a 1% annualized rate over the next year. Still, financial stress remains relatively low, and resilient consumer demand has boosted business cash flow.

"Top bank economists serving on our Economic Advisory Committee are forecasting weak growth in household spending and business investment over the next four quarters before a modest pickup in the second half of next year," said ABA Chief Economist Sayee Srinivasan. "Accordingly, ABA's latest Credit Conditions Index indicates that banks will continue to exercise greater caution in lending decisions until at least the end of the year."

Fourth Quarter Highlights

The Headline Credit Index fell 2.8 points in Q4 to 4.5, reflecting a consensus among bank economists that credit market conditions will continue to weaken over the next two quarters. As a result, banks are expected to continue to exercise caution when extending credit to both businesses and consumers over the remainder of the year.
The Consumer Credit Index worsened 6.5 points to 1.8 in Q4. All EAC members expect consumer credit quality to regress toward historic norms in the next six months, and nearly all members expect credit availability to fall as well. Overall, the sub-50 reading indicates that credit conditions for consumers are likely to weaken over the next two quarters.
The Business Credit Index improved marginally, by 0.9 points in Q4 to 7.1. As a group, most EAC members expect both business credit availability and quality to worsen, though some members anticipate little change in both quality and availability. Overall, the sub-50 reading indicates that credit conditions for businesses are likely to weaken over the next two quarters.