Dip in Jobless Rate Bodes Well for Credit Card Issuers

Credit cardsThe dip in the unemployment rate to 10 percent for November is welcome news to the major credit card issuers, who have been seeing steady increases in late payments – a signal of higher charge-off rates ahead.
But charge-offs, also known as defaults – card loans deemed as uncollectible – normally track the trend of the national unemployment rate, which hit a 26-year high of 10.2 percent in October.
The U.S. Labor Department statistics for November revealed more positive news: the economy shed 11,000 jobs in November, and the government significantly revised September and October numbers. September was adjusted to show a loss of 139,000 jobs instead of 219,000, and October 111,000 instead of 190,000.
Fitch Ratings’ latest credit card delinquencies report for October showed that payments overdue by 60 days rose to their highest levels in five months. Fitch said that late payments in October rose 19 basis points to 4.41 percent, following a similar increase last month.
Fitch has been projecting that unemployment will peak at 10.3 percent in 2010, but remain above 10 percent throughout the new year. The November numbers were surprising to economists who have been projecting a turnaround to come as late as next summer.
While those projections haven’t changed just yet, the decline in the jobless rate for November – possibly signals that charge-offs will continue the downward momentum of recent months.
For October, Fitch reported that charge-offs declined 66 basis points to 10.09 percent, marking the third consecutive improvement. Despite that, charge-offs remain 55 percent above year-earlier levels.
The November job loss figure was the most positive since December 2007, when the economy added 120,000 jobs.
The credit card industry still faces daunting challenges, including projections that as many as one-third fewer Americans will use their charge cards in coming days to buy Christmas gifts.
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