Consumers are still using credit cautiously, as credit quality measures are still improving rapidly, charging less and increasingly paying down balances as card defaults registered the second largest monthly decline since 2005. This could have also to do with the fact consumers aren’t finding jobs very quickly either. A stagnating July unemployment rate held steady at 9.1%, down only marginally from the previous month figure of 9.2%.
Nonfarm payroll employment was up 117,000 for the month, mostly in health care, retail trade, manufacturing, and mining. The July number of unemployed persons was 13.9 million, showing very little change from the 14.1 million last month, while the labor force, accounted for 153.2 million. Coincidentally, the 60+ day delinquency index for the 18th consecutive month declined further by 11 basis points (bps) to 2.46% in July, approximately 46% lower from the beginning of 2010. The July credit card chargeoffs having dropped 96 bps to 6.33% reflects a fourth straight monthly improvement and the first time its been below 7% in 2.5 years. However, chargeoffs remain roughly 6% higher than the historical average of 5.99% since 1991.
Consumers made an estimated $72 billion more in payments on their credit cards than purchases between the first quarters of 2009 and 2010, dispelling any idea charge-offs were driving lower credit card balances. This compares to five years ago when consumers had made an estimated $2.1 billion more in purchases than payments for nearly a $75 billion turnaround in consumer payment dynamics from 2004 to 2009. On a per-borrower basis between Q1 2009 and Q1 2010, average credit card debt in the U.S. declined more than $600 from $5,776 to $5,165. As of the first quarter of 2011, average credit card debt per borrower stood at $4,679, representing a 10-year low. This coincides with The number of persons unemployed for less than 5 weeks declined by 387,000 in July, mostly offsetting an increase in the prior month, while those unemployed more than 27 weeks totals 6.2 million to account for 44.4% of the unemployed. Not all signs are pointing to rougher seas ahead for our economy (CardFlash Library, 2011-08-10, 2011-08-29, 2011-08-30).