August credit card data shows no signs of ‘blowups’ amid qualms over consumer

Credit card issuers, on average, reported solid metrics in August as net charge-offs declined and delinquencies moved up by only 2 basis points, according to the data disclosed by eight companies last week.

“U.S. consumer credit metrics remain generally ‘normal’, alongside slowing spending/borrowing growth,” wrote Baird analyst David George in a note to clients.

Loan growth increased ~0.5% from July, amounting to $508.5B for the eight banks, according to the companies’ filings.

Earlier in September, credit card stocks dropped as investors fretted over the consumers’ financial health after Ally Financial’s (ALLY) CFO said auto loan borrowers were struggling with high inflation and a weakening employment backdrop.

“The data doesn’t indicate any ‘blowups’ at issuers under coverage despite some recent fear stemming from ALLY’s consumer credit commentary,” Baird’s George said.

The average delinquency rate rose to 3.00% in August from 2.98% in July. By comparison, the average delinquency rate was 2.74% a year ago and 2.67% in August 2019, before the pandemic and subsequent fiscal relief measures disrupted typical credit patterns.

The average net charge-off rate, or the percentage of credit card loans that banks consider uncollectible, slipped to 4.16% from 4.24% in July. Still, that’s up from 3.45% a year ago and 3.58% five years ago.

Jefferies analyst John Hecht points out that delinquencies peaked in January and have seen six straight months of declines, while net charge-offs booked its fifth straight month of declines. Meanwhile, the year-over-year change in delinquencies and net charge-offs is also ebbing.

He points out that payment rate of 31.72% have declined by ~24 bps month-over-month and year-over-year, but are still elevated compared with prepandemic historical levels (~20.6%), “a sign that the consumer remains resilient.”