Ever notice those warning signs on theback of 18-wheelers, “Caution-Wide turns”? Those long vehicles mayveer left before turning right, and then slowly slip around thecorner one axle at a time.
To extend the metaphor, it appears that the credit card industryhas gotten the front wheels around the corner to recovery.Delinquencies have been on the decline in 2010 from 5.9% to 4.58%between Q1 and Q3 (we watch the top 100 banks’ credit carddelinquencies in the FRB stats). Charge-offs dropped markedly from10.58% to 8.58% between Q2 and Q3.
Today, we got the news that unemployment dropped from 9.8% to 9.4%in December 2010, suggesting that the strong correlation betweenunemployment and charge-offs remains solid, even as we turn thecorner in a positive direction. One more set of axles around thecorner.
So when does the whole thing get around (i.e. when will creditcard spend and outstandings start to grow)? When the Q4 holidaynumbers are finalized, we may see credit card spend firmly inpositive territory, and possibly sustainable in Q1/11. But whenwill borrowing tick up? There are few positive signs yet thatconsumers are actually getting over their credit aversion. Butthere are some early reports of issuers making tentative stepstoward lower FICO scores, offering remedial credit products, andrevising secured card offers-all steps that will be necessary tostart growing the account base and outstandings once again. Thereis probably a way to go before the end of the trailer makes it allthe way around.
The pace of economic recovery is the ultimate arbiter, and so farthe leading indicators remain positive. Let’s hope for momentumthere. We’ve all seen what 18-wheelers have to do when they can’tquite make the turn…