Bank Economists: Credit Conditions Face Continued Challenges over Next Six Months

Credit conditions are expected to soften over the next six months as the labor market weakens and inflation persists, according to the American Bankers Association’s latest Credit Conditions Index released today.

ABA’s Credit Conditions Index is a suite of indices derived from the quarterly outlook for credit markets produced by ABA’s Economic Advisory Committee (EAC). The EAC includes chief economists from North America’s largest banks. Readings above 50 indicate that, on net, bank economists expect business and household credit conditions to improve, while readings below 50 indicate an expected deterioration. The bank economists were surveyed on September 23, 2025. 

After entering expansionary territory at the end of 2024, the ABA Credit Conditions Index registered 34.4 in Q3 2025. This is the third consecutive quarter the index has come in below the neutral threshold of 50 — signaling expectations of tightening credit conditions over the next six months. While EAC economists currently estimate a 27.5% probability of a recession in 2025, their forecast is more consistent with a “growth pause” scenario characterized by real GDP growth around 1% and sluggish job gains. 

“While economic growth is expected to remain positive, a softening labor market and an inflation rate above the Fed’s target will weigh on credit conditions,” said ABA Chief Economist Sayee Srinivasan. “‘On the positive side, the recent rate cut and anticipated additional cuts over the next few quarters should mitigate some of these headwinds. However, slower economic growth and higher inflation could disproportionately impact credit quality for smaller businesses and lower-income consumers.”

For the third quarter release:

• The Headline Credit Index rose 2.3 points in Q3 2025 to 34.4, improving mildly after three consecutive quarters of declines. The improvement was primarily driven by reduced expectations for a deterioration in credit availability. The below-50 reading suggests that overall credit conditions are still expected to weaken over the next six months.

• The Consumer Credit Index rose 8.9 points to 37.5. Most bank economists still expect consumer credit quality to deteriorate over the next six months, but the outlook for consumer credit availability has mildly improved. Overall, banks appear likely to maintain a prudent but stable lending posture in the near term. 

• The Business Credit Index fell 4.4 points to 31.3 due to deteriorating expectations for business credit availability. While a lower share of respondents expected credit quality to weaken compared to the previous quarter, respondents were more negative about firms maintaining access to credit. All respondents expected business credit availability to either deteriorate or hold steady over the next six months.

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). Input from the bank economists is weighted equally in the indices. This data will remain anonymous, but historical index values are available upon request.

The CCI combines respondents’ expectations for credit availability and quality over the next six months to form three diffusion indices — one headline index and two sub-indices (consumer and business). The indices are centered on 50, with higher (lower) values indicating that a net share of EAC members expect an improvement (deterioration) in credit quality or an expansion (contraction) of credit availability. The formula for the CCI is as follows: 

𝐼𝑛𝑑𝑒𝑥 = 50 + 50 ∗ (% 𝑖𝑚𝑝𝑟𝑜𝑣𝑒) – 50 ∗ (% 𝑑𝑒𝑡𝑒𝑟𝑖𝑜𝑟𝑎𝑡𝑒)

The three indices are the Headline Credit Index, the Consumer Credit Index, and the Business Credit Index. The Consumer and Business Indices combine responses to the questions pertaining to consumer or business credit markets, while the Headline Index pools response data from all four survey questions.