The recent April bump up in the charge-off ratio for retail credit cards may be short-lived despite the recent lags in U.S. economic growth.
Fitch Ratings says retail charge-offs should rise in the next month, but Fitch does not expect this change to carry into the longer term or spread to our prime indices in the coming months. Further, the firm expects its ratings of credit card ABS deals to remain stable.
Fitch believes the rise in retail charge-offs is correlated to the softness in recent macroeconomic data. Negative data is more likely to hit retail indices first as borrowers spend less money on their retail cards and pay off their all-purpose cards (those using the MasterCard or Visa network, for example) before their retail cards. Charge-offs represent the delinquent accounts that have not made a payment for six months.
The St. Louis Federal Reserve reported that the four-week moving average of initial jobless claims fell to about 259,000 from 276,000 during the first quarter. Since then, the average has fluctuated between 255,000 and 265,000. Spending slowed somewhat in the first quarter as US GDP grew at its slowest quarterly rate in two years.
Fitch’s other retail metrics will generally stay near their current readings in the next month.
April’s 60+ day delinquencies will remain near the 2.3% range they registered in March. Gross yield and monthly retail payment rates are projected to increase slightly.
Fitch expects prime credit card indices to decline but remain near recent records. Prime gross yield will decline but stay in record territory.
Charge-offs and the monthly payment rate will drop slightly and 60+ day delinquencies may drop to below 1%. While not a new record, this level is very low when compared to historical trends. Prime 60+ day delinquencies were in the 3.8% range from 2008 to 2010 and hit a high of 4.54% in December 2009.
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