A major economic index moved up again in August for the fifth consecutive month. A recovery appears to be very near but, the intensity and pattern of that recovery is more uncertain. The Conference Board “Leading Economic Index” for the U.S. increased 60 basis points in August, following a 90 basis points gain in July, and an 80 basis points rise in June. Since reaching a peak in July 2007, the “LEI” fell for twenty months – the longest downtrend since the mid 1970s – but it has been rising since April and its gains have become very widespread. Five of the ten indicators that make up The Conference Board LEI for the U.S. increased in August. The Conference Board “Coincident Economic Index” for the U.S. was unchanged in August, following a 10 basis points increase in July, and a 40 basis points decline in June. The Conference Board “Lagging Economic Index” declined 10 basis points in August, following a 50 basis points decline in July, and a 90 basis points decline in June.
A new survey shows that 26% of small business owners report expanding
opportunities for their business, up from 15% from a year ago, but 63%
do not think the worst of the U.S. economic woes are over, and 17% say
they risk going out of business in the next six months because of the
economy. According to the American Express “OPEN Small Business
Monitor,” a semi-annual survey of business owners, found that business
owners continue to do everything they can to protect their employees.
For example, 35% of small business owners have tapped personal assets as
a result of the recession, 27% have stopped taking a salary and 17% are
working a second job, comparable to six months ago. At the same time,
fewer business owners are laying people off (15%, down from 23% in the
spring) or cutting benefits (8%, versus 16% this spring). Looking beyond
the basic issue of cash flow, nearly half of entrepreneurs (45%) are
looking to access capital from external sources in order to run their
businesses. One out of five business owners (19%) say they are
experiencing difficulty accessing capital. To secure the funds they
need, business owners are tapping a variety of sources, including using
a bank loan (14%), using business or personal credit cards (each 13%),
tapping personal savings (10%), borrowing from a friend or family member
(3%), and private equity/venture capital or home equity (each 2%).
Discover’s U.S. Card unit reported that pretax income for the quarter ending August 31st nearly quadrupled, compared to one-year ago, and more than doubled from the prior quarter, due largely to income from its antitrust settlement with Visa and MasterCard. However, U.S. credit card sales volume declined 7% year-on-year, but rose 6% sequentially. Managed card loans also declined 1% from 3Q/08 and were flat, compared to the prior quarter. The managed net charge-off rate increased to 8.39% for the quarter, up 319 basis points and 60 basis points from the prior year and the prior quarter, respectively. The over 30 days delinquency rate on managed loans was 5.10%, up 125 basis points and up two basis points from the prior quarter. Discover expects the managed net U.S. credit card charge-off rate for the fourth quarter to be between 8.5% and 9.0%. Proceeds from the Visa and MasterCard settlement were $472 million pretax for the quarter. Managed loans ended the quarter at $50.9 billion, as lower cardholder payments and growth in both student and personal loans were largely offset by lower balance transfer activity and sales volume. Sales volume declined to $22.8 billion, reflecting lower gas prices and a general decline in consumer spending, but increased 6% from the prior quarter, primarily as a result of seasonal growth. Balance transfer volume declined 84% and 76% from the prior year and prior quarter. Net yield on loan receivables rose to 9.90%, an increase of 95 basis points from the prior year and 64 basis points from the prior quarter. The Third-Party Payments segment transaction volume of $36 billion was up 2% from the prior year. For complete details on Discover’s latest performance visit CardData (www.carddata.com).
U.S. CARD PRE-TAX PROFITS
3Q/08: $245.2 million
4Q/08: $646.4 million
1Q/09: $167.0 million
2Q/09: $387.9 million
3Q/09: $912.8 million
Source: CardData (www.carddata.com)
One year after the collapse of Lehman Brothers, Merrill Lynch, the DJIA
504 point drop and the resulting “Credit Crunch,” American consumers
remain cautious on spending, shifting to more value. For example a new
survey reveals that one year ago the greatest number of consumers said
their top priority expenses were vacations (25%) and dining out (24%).
Today, only seven percent named vacations as a high priority and dining
was named as a high priority for only eight percent.
The findings come from the new monthly “American Express Spending &
Saving Tracker” survey which also finds 60% of consumers intend to spend
about the same or more in the next 30 days, (compared to the last 30
days), but 40% plan to spend less. Among the 40% who said they would
spend less in the next 30 days, the top three reasons were “trying to
save money,” “reducing debt,” and that they “have the money but feel now
is not the time to spend.” The survey also found that consumersâ intend
to strengthen their household balance sheet. When asked what they would
do with $500 of found money, one-third of consumers said they would pay
off their regular monthly bills. One-in-four said they would apply it to
pay off credit card debt or save it. The new AmEx survey was conducted
by Echo Research.
The number of remote payment users across China is projected to double
by the end of 2013 for a total transaction value approaching US$14
billion. Regarding local payment services, still in its fledgling
stages, projections foresee 60 million users approaching a value of US$4
billion. According to research conducted through In-Stat, these elements
make China’s mobile payment services market a very competitive arena as
the focus of multiple companies and alternative technologies. Findings
also show SIM cards with RF SIM solutions customized by China Mobile are
expected to launch in mid-2010; +50% of respondents to In-Stat’s survey
express interest in using their mobile phones as a payment tool; and
36.7% of current mobile payment services users prefer to use payment
platforms funded by banks rather than any other institution type.
A new survey has found more consumers upbeat about the economy compared to this time last year due to lower gas prices and moderating food prices. However, given the length of the “Great Recession” Americans are still very much in the strategic spending mode. The survey from Information Resources found 23% of shoppers have a gift-giving budget over $799, down 13% from 2008 and 11% more plan on budgeting up to $499 this year for gifts than in 2008. More than 94% plan on spending no more than $500 on food and 90% plan on spending no more than $200 on holiday beer, wine, and spirits purchases. Also, 92% of consumers will be doing their holiday food shopping at the grocery store based on sales and discounts, product selection, and variety of items in stock. Additionally, there will be an 18% increase in online shopping from 2008, when only 41% of consumers shopped online. Finally, the overall effect of the recession on shopping decisions decreased nearly 5%.
Economic confidence among small business owners rebounded in August to
its highest level in 18 months. It is the fourth consecutive monthly
climb and indicates small business owners may be ready to start trying
to grow their businesses again. The latest “Discover Small Business
Watch” index rose to 89.8, up 7.7 points from last month. The survey
also discovered the number of small business owners who think the
economy is getting worse dropped to 43% in August, the lowest reading
since the survey began three years ago. About 27% of small business
owners say they plan to increase spending on business development, such
as advertising, inventory and capital expenditures, which is up from 23%
in July. Additionally, 51% of owners say they have experienced cash flow
issues in the past 90 days, down from 53% in July.
A credit card ABS rating firm says it needs to see some measurable
improvement in the delinquency and personal bankruptcy figures and the
employment situation overall before charge-offs revert to more
historical norms. Fitch Ratings says that despite the one-month
improvement in July, most credit card ABS trusts remain pressured from a
charge-off perspective. Charge-offs had risen 45% from February through
July and they still remain 63% above year earlier levels. Late stage
delinquencies, or receivables more than 60 days past due, have held
relatively stable albeit near record highs during the same period
following a rapid increase over the prior six months that forewarned the
charge-off run-up. Fitch’s “Prime Credit Card Charge-off Index” declined
24 basis points to 10.55% for the July collection period. Despite the
elevated level, Fitch expects current ratings of senior tranches to
remain stable given available credit enhancement and structural
protections afforded investors.
Walmart moves deeper into financial services by offering consumers low priced bill-paying services via its 3,755 domestic locations, including Walmart SuperCenters and Neighborhood Markets.
The retailing behemoth succeeded in driving down prepaid card prices to $3 and now offers next day “CheckFreePay” service from Fiserv for less than $2. Walmart already caps the check cashing fee at $3 for payroll and government checks. The “Walk-in Bill Payment and Same Day Bill Payment” services includes “Standard Delivery Bill Pay” by “CheckFreePay” (delivered within three business days) for $0.88; “Next-Day Delivery Bill Pay” by “CheckFreePay” for $1.88; “Same Day” by MoneyGram starting at $4.50; and “Money Orders” for $0.60 Walmart also offers the “Walmart MoneyCard,” a reloadable, pre-paid Visa debit card, for $3. The “CheckFreePay” service from Fiserv gives customers the ability to pay bills from more than 2,500 companies. The new Walmart service enables consumers to pay utility, landline phone, cable/satellite, credit card bills, auto and wireless phone at their local store.
Minneapolis-based FICO has found that available revolving credit had
been reduced for an estimated 33 million U.S. cardholders between
October 2008 and April 2009. Of the total researchers found that credit
reports for nearly nine million contained recent negative credit
references such as reported late payments. In examining the 24 million
consumers whose credit card limits were reduced despite the absence of
any new risk triggers in their credit reports, FICO found reductions in
card limits were found to have negligible impact on the FICO scores of
most consumers in this group. Once their available revolving credit had
been reduced, FICO observed a drop in score for only a third of the
people in this group, an estimated 8.5 million consumers, with the
typical score drop well under 20 points. Of the remaining 15.5 million
consumers, the company found that an estimated 3.5 million had no
appreciable change in FICO score, and scores for the remaining 12
million consumers actually increased after their credit line had been
A monthly index suggests that the recession is bottoming out. The Conference Board “Leading Economic Index” increased 60 basis points in July, following an 80 bps gain in June, and a 120 bps rise in May.
It has increased for four consecutive months. The six-month change in the index has risen to 3% (a 6.2% annual rate) in the period through July, up substantially from -2.8% (a -5.4% annual rate) for the previous six months. However, the “Coincident Economic Index” was flat in July – the first time it did not register a decline since October 2008.
Six of the ten indicators that make up “The Conference Board LEI” for the U.S. increased in July. The positive contributors – beginning with the largest positive contributor – were interest rate spread, average weekly initial claims for unemployment insurance (inverted), average weekly manufacturing hours, index of supplier deliveries (vendor performance), stock prices, and manufacturers’ new orders for nondefense capital goods.
There appears to be stabilization in delinquency rates and a
deceleration in charge-off increases based on the latest performance for
credit card-backed securities. Delinquency has leveled off over the past
five months, hovering between 4.3% and 4.5%. Charge-offs, which soared
more than 100 basis points in February, increased 35 basis points in
June, the smallest increase in five months. According to Fitch,
charge-offs among prime credit card ABS hit a record 10.79% in June,
compared to 10.44% in the prior month, but up 64% higher than
year-earlier measures. Credit card delinquencies (60+ days) declined 14
basis points in June to 4.31%, but up about 40% over June 2008.
Pricing initiatives and discount options continue to generate
incremental yield, as evidenced by a 36 basis point rise in June’s yield
to 17.95%, representing the highest level in 15 months. Since the
increase in yield completely offset the increase in charge-offs this
month, one-month excess spread improved slightly although the
three-month average excess spread remains compressed at 4.35%.
Jan 09: 4.04% 7.40%
Feb 09: 4.33% 8.41%
Mar 09: 4.44% 8.89%
Apr 09: 4.37% 9.66%
May 09: 4.45% 10.44%
Jun 09: 4.31% 10.79%