ABA: Credit market will weaken in next six months

Credit conditions and availability will weaken over the next six months for consumers and businesses, according to the American Bankers Association's fourth quarter 2023 Credit Conditions Index..The headline credit index fell 2.8 points to 4.5, which indicates that banks will become more cautious about extending credit in the next two quarters. The index for business credit improved by less than a point to 7.1 as banks are expected to be cautious when extending credit to both consumers and businesses over the rest of this year. .Commercial and industrial business lending has fallen for most of this year, which reflects a "risk-off" posture from many business owners, according to the ABA. The ABA's Economic Advisory Committee of chief economists expects business investments will grow at just a 1 percent annualized clip over the next year. "Still, financial stress remains relatively low, and resilient consumer demand has boosted business cash flow," the ABA stated. .The index for consumer credit fell 6.5 points to 1.8 as the ABA's committee of chief economists expect credit quality to fall toward historical averages in the next six months. According to the report, consumer spending has supported the U.S. economy among households but will fall later this year and in 2024 as wage growth slows, pandemic-era savings dwindle and student loan repayments begin again. Households have reportedly turned more to credit cards to support spending, and delinquency rates are similar to before the pandemic but remain lower than the 1990s and 2000s. ."Top bank economists are forecasting weak growth in household spending and business investment over the next four quarters before a modest pickup in the second half of next year," noted ABA Chief Economist Sayee Srinivasan.