Economists expect improvement in credit market conditions

Industry economists among the nation’s largest banks forecasted significant improvement in the business and consumer credit market conditions in the next six months, according to a report by the American Bankers Association.

The ABA Credit Conditions Outlook from the second quarter of 2021 gauges the association’s credit conditions index, which comprises a slew of indices from the Economic Advisory Committee’s quarterly outlook for credit markets. 

All three index components rose above 50 for the first time since mid-2018, indicating that, on net, the economists who make up the committee expect conditions to improve. The survey closed on March 8, at a time when committee members were anticipating the passage of Congress’s latest relief package. 

“The latest round of federal stimulus including another wave of Economic Impact Payments will provide more financial support to borrowers and lenders across the country,” said ABA Senior Economist Rob Strand. “As a result, we should see a further improvement in credit conditions.”

The report nodded to the improvement of near-term expectations for credit quality and availability for both consumers and businesses, building on recovery that began the previous quarter. With the increases in the Headline Credit Index, the Consumer Credit Index and the Business Credit Index, bank economists expressed expectation for broad improvement in the credit market conditions, and that the anxieties from the COVID-19 pandemic and economic turbulence have started to abate. 

The HCI jumped 34 points to 77.9 in the second quarter, which is its highest reading in five years, and the largest single-quarter increase in the index’s history. This index represents how confident economists are about market condition improvements in the next six months.

The CCI increased more than 37 points to 82.7, also the highest it’s been since 2014. No EAC member expected consumer credit availability to decline in the next half-year, while the majority of economists expected consumer credit to improve. 

The BCI increased 31 points to 73.1 in the second quarter, indicating the expectation for business credit quality and availability to improve in the coming six months. Similar to consumer credit expectations, economists expect availability to improve more quickly than credit quality among businesses.

Although the indices are at their highest in years, Strand recognized that consumers and businesses continue to struggle even as economic activity ramps up. 

“Banks are committed to working with customers still facing financial stress as the economy recovers.”

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