The number for credit card issuers to watch is revolving debt in the United States. The metric I prefer is from the Federal Reserve’s G-19 report, for revolving, total outstanding. We find the projected number to be $975.9 billion in revolving debt in the latest report, almost $100 billion less than the 2019 year-end close.
With COVID still impacting the economy, and an unsettled horizon, it is hard to draw a bead where 2021 will end, but the decrease is nearly stable. Q120 was the peak for 2020, at $1.078 trillion, then a dead-cat-bounce in Q2 20 to $995.0 billion, followed by $986 billion in Q320, then ending the year a projected $975.9 billion.
The critical takeaway here is that the credit card issuer’s Interest Income revenue line is relatively protected. The downward trend picked up by many media sources is not so bad after all. Now, if you sit on the consumer side of the equation, where the December average state unemployment rate in Nevada is was 9.2%, or in California, where it is 9.0%, life is not so rosy. Still, there are some pockets where unemployment rates are decent. Unfortunately, these are smaller states, such as Alabama (3.9%), Iowa (3.1%), Indiana (4.3%), Kansas (3.8%), New Hampshire (4.0%), South Dakota (3.0%), Utah (3.6%), and Vermont (3.1%).
Getting people back to work and getting beyond the politics is what is key to recovery.
The good news is that charge-offs remain stable. The latest numbers, which update in about two weeks, show that Q320 was 3.48% for top banks. Smaller banks, not in the top 100, did not perform as well, at 6.39%, but they improved over the Q220 peak, which was 7.99%
On the positive side is total household debt, which rose 1.4% in 4Q20, and now sits at $14.6 trillion. CNBC cited a record-breaking rise that pushed the metric to more than $10 trillion. The dark side is that student loan debt increased slightly, mostly due to forbearances.
And for credit cards, one good number to watch is the number of accounts entering delinquency was <4% in 4Q20. Much of that number is influenced by forbearances, but take it as a win. Third-party placements at collection agencies are at an 18-year low-representing less than 8% of consumers, according to the NY Fed. Take your successes when you get them!
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group