Credit Conditions Set to Deteriorate, Say Economists

Credit market conditions are set to weaken as a result of high inflation over the next six months, according to the American Bankers Association’s (ABA) latest Credit Conditions Index.

The index, based on the work of the ABA’s Economic Advisory Committee, forecast a sharp fall in credit quality and availability for consumers and businesses across the third quarter of 2022. This was in stark contrast from 2021 and the beginning of the current year.

The ABA indicated that the report was reflective of continual issues occurring as a result of rising inflation, along with disruptions to supply chains, especially throughout the COVID-19 pandemic.

Sayee Srinivasan, chief economist and head of research for the ABA, said: “While consumers continue to benefit from an exceptionally strong labor market, Russia’s invasion of Ukraine and China’s ‘zero-COVID’ policy are adding to inflationary pressures and increasing economic uncertainty.

“As the Fed raises rates to combat inflation, the outlook for credit markets has unsurprisingly weakened.

“The good news, however, is that jobs are plentiful, consumer demand is strong and companies continue to invest at a healthy clip. For these reasons, most bank economists remain cautiously optimistic about the trajectory of the US economy over the remainder of the year.”

The Consumer Credit Index fell by 15.7 points to 22.9, while the Headline Credit Index fell to 20.8, dropping 20.1 points to its lowest reading since the fourth quarter of 2020. The Business Credit Index fell to 18.8, a 24.4-point reduction.

A rating over 50 marks an expected improvement in conditions, while a rating below 50 markets a predicted weakening of the market.