Economists expect sustained rebound in market conditions

The chief economists of North America’s largest banks expect a sustained rebound in both consumer and business credit market conditions over the next six months, according to the American Bankers Association’s latest Credit Conditions Index released last month.

The latest summary of ABA’s Credit Conditions Index examines a suite of indices derived from the quarterly outlook for credit markets produced by ABA’s Economic Advisory Committee, which is comprised of chief economists from major banking institutions across North America. Readings above 50 indicate that, on net, the economists expect business and household credit conditions to improve, while readings below 50 indicate a deterioration.

“A rapid and successful vaccination effort this spring, billions of dollars of built-up savings that can now be spent, and the unprecedented pandemic response from the federal government have positioned the U.S. economy for strong growth in 2021,” said ABA Chief Economist and Head of Research Sayee Srinivasan. “Banks will continue to play a critical role in providing credit access to individuals and businesses as the recovery continues.”

After improving markedly last quarter, near-term expectations for credit quality and availability remain healthy for both consumers and businesses. Specifically, all three components of the Index held well above 50. This suggests that bank economists anticipate that credit market recovery will continue over the next six months as the economy continues to bounce back from last year’s brief but deep recession triggered by the pandemic.

In the third quarter of 2021:

• The ABA Headline Credit Index eased 1.1 points to 76.8 in the third quarter. The Headline reading is the second-highest since 2014 and still well above 50, signaling that EAC members expect credit market conditions to improve over the next six months.
• The ABA Consumer Credit Index fell 5.9 points to 76.8 in the third quarter. Expectations for consumer credit quality declined while expectations for consumer credit availability were mostly unchanged. Slightly fewer EAC members expect consumer credit quality to improve over the coming six months, though the lofty reading still suggests that EAC members expect consumer credit quality to remain strong.
• The ABA Business Credit Index improved 3.7 points to 76.8 in the third quarter, driven by positive movement in business credit availability, which rose to the highest level since 2014. Meanwhile, slightly fewer respondents expect business credit quality to improve over the next six months, though expectations remain strong relative to the last six years of data.

“The outlook for credit markets remains bright, as all three indices are still elevated compared to readings over the last several years,” said Srinivasan. “However, bank economists have identified a potential for rising inflation and supply chain and labor market constraints as key economic risks that could negatively impact the credit markets in the coming months. Time will tell whether these headwinds will prove to be temporary or sustained.”

The ABA Credit Conditions Index is a suite of proprietary diffusion indices derived by the American Bankers Association from surveys of bank chief economists from major North American banking institutions.

Since 2002, the bank economists have forecasted credit quality and availability for both businesses and consumers, indicating whether they expect conditions to improve, hold steady or deteriorate over the ensuing six months.