This is not our first rodeo; metrics matter, and there is a coming bubble.
Today’s WSJ touches on the credit quality risk we’ve been talking about all year and points to factors beyond deteriorating credit card performance: savings are down, and expenditures are up.
The U.S. Commerce Department added two other notable data points on Monday.
It announced that the personal-saving rate was 3.1% in September, down from 3.6% the prior month and the lowest rate since December 2007.
And personal consumption expenditures, a measure of household spending on everything from washing machines to haircuts, increased a seasonally adjusted 1.0% in September from the prior month, the largest month-over-month gain in eight years.
If you are on the issuing side, you are most likely experiencing increased volumes. In fact, if you have 2017 MBOs on credit losses, you might see a personal hit come April-Bonus time. These two additional metrics, lower savings, and higher spending suggest that we will see a rough 2018 and you should negotiate the numbers into your financials.
A combination of several economic factors would have to “progressively worsen to hurt consumer loan performance,” wrote the S&P analysts.
Ladies and gentlemen, this is not rocket science. Easy lending and high credit usage means trouble. Add in some ancillary numbers like people saving less and record consumption and the result is certain. As we have said before, Circle the Wagons.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
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