Credit card delinquencies rise, charge-offs fall in July; consumer stays resilient

U.S. credit card delinquencies continued to creep up in July, while the proportion of loans that lenders are writing off as losses declined, according to a compilation of data from company disclosures.

That comes against a backdrop of a resilient consumer, who surprised economists with healthy spending in July. Last month, retail sales bounced back M/M. Excluding autos and gas, retail sales rose 0.4% in July, slowing from +0.8% in June, but still exceeding the +0.3% consensus.

But some are worried about rising delinquency rates. Last month, the Federal Reserve Bank of Philadelphia said the percentage of credit card balances that are at least 60 days overdue rose to 2.59% in Q1 2024, which was the highest level since it started tracking the data in 2012.

On average, the proportion of credit card loans that are past due rose to 2.98% in July, compared with 2.90% in June and 2.45% a year ago.

Meanwhile, the average net charge-off rate of 4.24% dipped from 4.37% in June and 4.44% in May. The current month remains higher than the year-ago rate of 3.41% and the prepandemic level of 3.55% in July 2019.

The Y/Y percentage change in delinquencies and net charge-offs continued to decline compared with the prior month, said Jefferies analyst John Hecht in a recent note to clients. In July, the Y/Y percentage change in delinquencies of +42 basis points decreased by 6 bps from June’s +48 bps difference, “a trend that is needed to continue in order to revert to historical DQ levels per management commentary,” he wrote.

Excluding JPMorgan Chase (NYSE:JPM), due to its master trust’s asset pool transfers, lending activity rose 0.6% M/M to a total of $493.4B for seven credit card lenders.

Jefferies’ Hecht pointed out that the payment rate rose to 31.49%, up 95 bps M/M and up 60 bps Y/Y, “which remain elevated vs. historical levels — a sign the consumer remains resilient.”