The chief economists from North America’s largest banks anticipate substantial improvement in both consumer and business credit market conditions over the next six months, according to a new report from the American Bankers Association.
The Q2 2021 ABA Credit Conditions Outlook highlights the results of the ABA Credit Conditions Index. The report summarizes a suite of indices derived from the quarterly outlook for credit markets produced by ABA’s Economic Advisory Committee (EAC), 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. The latest survey of the EAC closed on March 8, with participants anticipating Congressional passage of the latest COVID-19 response legislation providing additional relief to consumers and businesses.
“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 Q2 2021 report finds that near-term expectations for credit quality and availability have improved markedly for both consumers and businesses, building on the recovery that began last quarter. Specifically, all three components of the new index rose above 50 for the first time since mid-2018. This suggests that bank economists expect broad improvement in credit market conditions over the next six months, and that the anxieties from the COVID-19 pandemic and ensuing economic strife have begun to abate.
In the second quarter of 2021:
- The Headline Credit Index surged more than 34 points to 77.9 in the second quarter, its highest reading since mid-2014 and the biggest single-quarter increase in the index’s history. The Headline Index is now well above 50, signaling that on balance, EAC members expect credit market conditions to improve over the next six months.
- The Consumer Credit Index jumped more than 37 points to 82.7 in the second quarter, also the highest reading since mid-2014. Expectations improved for both consumer credit quality and availability. No EAC member expects consumer credit availability to deteriorate over the next six months, while a solid majority expect consumer credit quality to improve over the same period.
- The Business Credit Index climbed nearly 31 points to 73.1 in the second quarter, driven by stronger expectations for both business credit quality and availability. As with consumer credit, respondents expect business credit availability to improve more quickly than business credit quality over the next six months.
“Overall, the outlook for the credit markets is quite strong, as all three indices are at their highest levels in more than five years,” said Strand. “However, it is clear that many 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.”
The full report with detailed charts and a discussion of the broader economic context is available here.
About the Credit Conditions Index
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. Readings above (below) 50 indicate that, on net, these expert business analysts expect credit market conditions to improve (deteriorate). Survey responses are anonymous and weighted equally each quarter.
Answers to Frequently Asked Questions about the ABA Credit Conditions Index can be found in an Appendix attached to the outlook. This report and all previous reports can be found at https://www.aba.com/news-research/research-analysis/aba-credit-conditions-index.
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