Despite optimistic pronouncements from the nation's financial stewards, a recovery is not in the cards. At least not anytime soon, judging by the latest data on credit card delinquencies, one of the most common forms of consumer debt.
On Tuesday morning, Fed chairman Ben Bernanke asserted that the recession is "very likely over at this point."
Per the New York Times:
"From a technical perspective, the recession is very likely over at this point," he said, adding that "it's still going to feel like a very weak economy for some time, as many people will still find that their job security and their employment status is not what they wish it was."
Weak economy indeed. Starting with the premise that consumer spending drives the economy (if people aren't buying, businesses aren't producing) credit cards are a good proxy for gauging how consumers are holding up. About 40 percent of outstanding consumer debt is on credit cards.
Well, delinquency rates are going up, and more and more banks are giving up on collecting those loans.
Capital One recently disclosed that delinquency rates on its cards increased to about 5.1 percent in August from 4.83 percent in July. The nation's largest bank, Bank of America, said its charge-offs -- loans it doesn't expect to be repaid -- were up to 14.54 percent in August from 13.81 percent in July; charge-off rates for Discover and Citigroup also rose.
JPMorgan Chase said its charge-offs and delinquencies were both up in August to about 8.7 and 4.5 percent, respectively (compared to July). Analysts at Fox-Pitt Kelton said Tuesday that for Chase the data "suggests the worse [sic] has yet to come."
From Reuters:
Credit card defaults usually track unemployment, which rose to a 26-year high of 9.7 percent in August. The jobless rate is expected to peak at more than 10 percent by year-end.
Considering the trend of unemployment and the increase in delinquencies, analysts have estimated credit card losses will keep rising in coming months.
Though consumers aren't out of the woods yet, it could have been worse.
From Reuters:
Yet analysts have a rosier outlook now than they did a few months ago, expecting credit-card defaults to bottom out at an average of 11 percent to 12 percent, below earlier estimates of up to 14 percent