Bank Economists See Weakening Credit Conditions

According to the American Bankers Association’s Credit Conditions Index for Q3 2022, released last week, bank economists expect credit market conditions to deteriorate over the second six months of 2022.

The Credit Conditions Index is derived from the quarterly outlook for credit markets produced by the American Bankers Association’s Economic Advisory Committee (EAC), comprised of chief economists from banks across North America.

All three indexes included in the report experienced declines, with the Headline Credit Index dropping 20.1 points to 20.8, the Consumer Credit Index dropping 15.7 points to 22.9, and the Business Credit Index dropping 24.4 points to 18.8. Scores above 50 indicate that the panel expects credit markets to improve, while scores below 50 indicate that the panel expects credit markets to deteriorate.

According to coverage of the index in American Banker, “the drop isn’t surprising given that the Federal Reserve’s rate hikes are intended to dampen growth somewhat, and a slowing economy may bring less demand for loans and a pullback in banks’ credit offerings, said ABA Chief Economist Sayee Srinivasan.”

Srinivansan also said that most bank economists “remain cautiously optimistic about the trajectory of the U.S. economy over the remainder of the year.”

Half of the ABA’s EAC members expect consumer credit availability to fall over the rest of the year, while only one expects it to strengthen. Two thirds expect consumer credit quality to deteriorate with none forecasting an improvement.

Regarding business credit, half of the committee’s members expect business credit availability to fall, while only one sees it strengthening. Meanwhile, all but two committee members expect business credit quality to deteriorate.