Saturday, February 25, 2012

Credit Card Delinquency Rate Falls to 17-Year Low As the National Debt Approaches 100% of GDP

The Federal Reserve released new data this week on delinquency and charge-off rates at U.S. commercial banks for the fourth quarter of 2011. For consumer credit cards, the delinquency rate fell for the 10th consecutive quarter to 3.27% during the October-December period last year, dropping to the lowest level since a 3.24% reading in the third quarter of 1994, more than 17 years ago (see blue line in chart). Compared to the 4.50% quarterly average since 1991, the delinquency rate on credit cards is now about a full percentage point below the long-run average.

For all consumer loans, the fourth quarter delinquency dropped to 3.08%, the lowest rate since the 3.0% rate in the second quarter of 2007 before the recession started (see red line in chart). The second quarter delinquency rate is also below the 3.50% historical quarterly average since 1991.

Delinquency rates for consumer loans and credit card debt are both back to pre-recession levels, and credit card delinquencies are the lowest in 17 years.  Likewise, the charge-off rates for all consumers loans and credit card loans are both back to pre-recession levels (data here). The drop in delinquency and charge-off rates for consumer debt is consistent with the drop in the household debt ratio in Q3 last year to 11.1% (red line in chart below), the lowest since 1994. 

When it comes to managing debt, American households seem to be acting more and more responsibly, maybe because of some hard lessons learned during the recession about fiscal responsibility.  Meanwhile, the politicians in Congress seem to be acting less and less responsibly, as the national debt (about $15.1 trillion) now approaches 100% of GDP ($15.3 trillion), see chart below.


At 2/25/2012 1:58 PM, Blogger juandos said...

"For consumer credit cards, the delinquency rate fell for the 10th consecutive quarter to 3.27%..."...

Do individuals who've file for bankruptcy and the courts have processed their cases fall off this count and are no longer considered?

At 2/25/2012 6:23 PM, Blogger kmg said...

Contrary to the belief that the baby Boomers are going to screw young people, I think it is the Boomers themselves who are going to be screwed.

The debt is *already* 100% of GDP, and oldest boomers are only 66, and the median boomer (born in 1955) is only 57!

There is no room for them to run up the debt on their own SS/Medicare. The run up has already happened before they could be the vultures who swindle the country.

Furthermore, many young people are either buried in college loans, cannot get a job, or both. Hence, they are years away from being able to buy a house, and Boomers need sellers to sell their houses too. An absence of sellers means Boomers will not be able to preserve their equity.

So Boomers are screwed. Baby boomers living their old age in poverty will be the American reality 2015-30.

At 2/25/2012 8:36 PM, Blogger morganovich said...

these numbers do not seem correct to me.

the year end consumer credit outstanding number i got from FRED is 2.498 tn.

for that to be around 16% of disposable income, DI would need to be 15.6 tn, which is larger than US GDP.

my understanding is that the actual dpi number is around 11.3tn (nominal per capita dpi of 36.9k X 307mm people), so it would seem like the % ought to be 22%.

this also seems to ignore mortgage debt.

residential mortgages debt outstanding is another $10tn.

that's another 88% of DPI, pushing the number over 100%. some of this is offset by equity etc, and i'm not sure how to weight that, but these numbers are a bit silly if you ignore mortgages.

that's the big category.

it's like saying "us finances look good if you ignore entitlements".

At 2/26/2012 9:34 AM, Blogger rjs said...

a 404 on your first link...

At 2/26/2012 10:16 AM, Blogger Mark J. Perry said...

Thanks, it's fixed now.

At 2/26/2012 10:29 AM, Blogger morganovich said...

this also seems to ignore student debt.

which is maybe another 8% of DPI.

looking at consumer debt this way seems a bit like looking at a house, 2/3 of which just slid down a hill in a mudslide and saying "hey, the garage looks great!".

At 2/26/2012 12:17 PM, Blogger Tom said...

Rather than responsible borrowing, this can also be forced responsibility. As the banks get dinged (e.g. less flexibility on credit card fees) they cut back lending to riskier groups. Cut off the left tail and credit card debt looks safer. However the lack of access can be hidden in these otherwise positive trends.

At 2/26/2012 3:36 PM, Blogger morganovich said...


my understanding is that that is precisely what is happening.

the size of credit lines out dropped a ton and people are being forced to pay down balances and cannot run them up.

further, a lot of write offs occurred, which further truncates the tail.

in 2005, every issuer was looking for ways to get the middle and lower classes credit cards as it was the "growth" market.

now, they are all focused on the high end and want little to do with subprime.

my understanding is that chase is killing it with saphire (which is a great card) and that guys like citibank are getting mauled as they lack the basic customer service and amenities/programs to acquire and retain higher end CC customers.

At 2/27/2012 9:50 AM, Blogger morganovich said...

also note:

q4 showed a very different story.

"Consumer credit increased at an annual rate of 7.5 percent in the fourth quarter. Revolving credit increased at an annual rate of 4.5 percent, and non-revolving credit increased 9 percent in December," the Fed wrote in a note along with the latest monthly report, which also reviewed 2011.

In December 2011, the total consumer debt -- which is the combination of non-revolving and revolving debt -- rose by some 9.3 percent to $2.498 trillion, according to the latest Federal Reserve Board numbers.

this chart would look less pretty if it extended to q4.


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