October 1, 2009
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News: August CC Trends Take Downturn, Says Moody's
Last month we were able to report positive credit card motion as reported by Moody's. Even then, however, they warned of a likely downturn. Well, it turns out that they were right on the money. Our credit card consumers have slipped again last month with poor management of their financial resources. The rate of credit card delinquencies has picked up again, after four months in a row of decline ending in July. Charge-offs (uncollectables), the most serious credit card delinquencies took a spike in August.
Starting an the rate of 10.52% in July, uncollectibles jumped to 11.49%. Just when we thought (or hoped) we were coming out of the woods. Compared to a year ago, we've climbed a significant 6.8% in the credit card charge-off rate. In perspective, though, we must bear in mind that August has historically been known as a bad month for credit card delinquencies.
If Moody's is right, we can expect conditions to get much worse through the coming months. They're predicting the rate to steadily continue it's climb and to not subside until mid-next year. At that time, credit card charge-offs are expected to top off between 12% and 13%. This is largely based on negative unemployment forecasts. Currently around 9.7% nationally, unemployment is expected to top between 10% to 10.5% at that time also. Unemployment is the bellwether here so we expect the two to stay in step.
The lesser but still significant first-time credit card delinquencies have also inflected from down to up in August. Up from 5.73% in July to almost 5.8%, they are still below the 5.81% level of June. Remember that the ultimate "charge-off category" always begins at the lower "30 to 60-day category". (For a synopsis of last month's report, please refer to my previous articles entitled: "Credit Card Charge-offs Finally Turning Around" and "Moody Still Predicts Charge-offs Worsening").
"Back-to-school" credit card usage is probably the most significant driver of spiking August delinquencies. If this theory holds, we will gain much insight on trending next month when Moody's next report comes out. If these rates inflect back down, we me able to break the negative predictions based so heavily on unemployment alone.