Consumer Health Check: Are We OK? How Credit Card Data Could Provide Some Clues

Zinger Key Points
  • Analysts attribute slower Q4 growth to weak U.S. consumer spending and a tough macro backdrop.
  • According to the New York Fed, the "real test" is whether borrowers are able to simply make credit card payments.

Consumers are "still depressed” despite a bounce in sentiment, Gregory Daco, chief economist at Ernst & Young, recently said.

Major purchases are being put on hold as shoppers opt for frugality over luxury treats and discretionary spending. Then again, consumers who continue to swipe are accumulating a dangerous amount of debt and struggling to make payments.

A few clues about the state of consumer health emerged in the recent earnings reports from major card issuers including JPMorgan Chase & Co. JPM, Wells Fargo & Co WFC, Bank of America Corp BAC and Citigroup Inc C.

See Also: We Keep Swiping Away, But Are We Aware Of The Credit Card Rates We're Paying?

For example, based on data pulled from those firms, the total U.S. average card issuer volume grew 6.9% year-over-year. That's a deceleration from 9.3% in the third quarter, according to analysts at Bank of America.

"We would attribute slower 4Q growth to a weaker U.S. consumer spending environment amid a tough macro backdrop," they noted.

More details about consumer spending will emerge later this week from the major credit card companies, including:

  • Mastercard Inc MA and Visa Inc V: When both companies release quarterly earnings on Jan. 26, expect a lack of volume growth but an uptick in revenue for the three-month period ending Dec. 31 — 11% for Mastercard and 9% for Visa — compared to 2022. Downside risks include "weak consumer spending in the event of a macroeconomic downturn," analysts say.
  • American Express Company AXP: The credit card company is expected to report earnings on Jan. 27 before the market open. It expects fourth-quarter revenues to be up 15% compared to 2022. Recall how it beat third-quarter earnings estimates by 2.49%.
  • Capital One Financial Corp. COF: The credit card issuer is scheduled to announce fourth-quarter earnings results Jan. 24, after the market close. Capital One's delinquency rate from December was high at 1.18%. AmEx, meanwhile, reportedly had the lowest rate at 0.54%. Recently, reports circulated that Capital One laid off more than 1,000 employees.
  • Discover Financial Services DFS: The firm reported on Jan. 18 that net interest income hovered at around $3.07 billion. While that beat the figure that was expected, $3.02 billion, it's evident that a chunk of Discover's customers are not keeping up with their payments.
  • The 30-plus day delinquency rate for credit card loans was 2.53%. That's up 87 basis points year-over-year and up 42 basis points from the prior quarter (a hint that more and more payments are past due). And the portion of the debt that it expects won't be repaid is 2.37% for the fourth quarter.

Paying The Bills

Credit card data is crucial when it comes to gauging consumer activity and determining the health of the U.S. economy.

According to the New York Fed, the "real test" is whether borrowers are able to simply make credit card payments.

In November, the New York Fed reported that while delinquency rates have begun increasing, "they remain low in comparison to the levels we saw through the Great Recession and even through the period of economic growth in the ten years preceding the pandemic."

Data from Bankrate LLC also shows that cardholders (46% as of December) aren't paying off their balances in full each month.

For borrowers in the highest-income areas, delinquency rates remain well below historical trends, but the New York Fed maintains that monitoring the path of these delinquency rates is of utmost importance, adding, "Is this simply a reversion to earlier levels, with forbearances ending and stimulus savings drying up, or is this a sign of trouble ahead?"

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