The latest federal stimulus package will improve consumer and business credit conditions significantly in coming months, but a successful distribution of vaccines remains the key to fully putting the U.S. economy on pre-pandemic footing, according to a new credit outlook issued by the American Bankers Association.
Near-term credit availability for both individuals and companies is projected to rise at a rapid clip between now and September, while credit quality will get better but at a slower pace, bank chief economists said in a quarterly ABA survey.
Three indexes calculated from survey input — one on consumer credit, another on business credit and the third called headline credit, which is based on the combination of responses to the questions on consumer and business lending — climbed well above 50 in the latest reading after hovering in the mid-40s in the prior report.
Index readings above 50 indicate that, overall, the economists expect business and household credit conditions to improve. Readings below 50 reflect anticipated deterioration in the markets.
The consumer credit index came in at 82.7, up from 45.3 last quarter, followed by headline credit at 77.9, which rose from 43.8, and business credit at 73.1, which was previously at 42.2.
Those are the highest levels in five years, the ABA said.
“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,” ABA Senior Economist Rob Strand said in a press release Thursday. “As a result, we should see a further improvement in credit conditions.”
There were signs that pressure on consumers has been easing for weeks, the ABA noted. In mid-December, before the second stimulus package was approved, more than 17% of consumers said that paying for normal household expenses was “very difficult,” according to the Census Bureau’s Household Pulse Survey. That percentage dropped to 14% during the second half of January and dipped slightly to 13.9% during the second half of February, the Census Bureau said.
Since then, there has been additional stimulus and vaccinations have gained momentum. According to the Centers for Disease Control and Prevention, an average of 2 million doses per day are being administered. President Biden has said he wants all states to offer vaccines to everyone by May 1.
Still, “it remains to be seen how quickly enough Americans can be fully vaccinated to allow for a full return of pre-pandemic economic activity,” the ABA said.
The ABA surveys 15 bank economists who sit on the association’s economic advisory committee. The survey is meant to track the direction in which credit markets are moving. Every quarter, economists are asked four questions about credit market expectations, including whether they expect consumer and business credit quality and availability to get better, stay the same or deteriorate over the next six months.
They were polled about anticipated credit market conditions before the $1.9 trillion American Rescue Plan was signed into law March 11. The package includes up to $1,400 in direct payments to individuals, an additional $300 per week in unemployment benefits and $10 billion for vaccine distribution.
