Credit Card Delinquencies Rise and Growth Slows

The Wall Street Journal had an article on Credit Cards on their front page Friday. Here are some quotes:

America's love affair with credit cards may be headed for the rocks.

Credit-card delinquencies are rising across the nation, a sign that
some Americans are at the end of their rope financially.

In December, an average of 7.6% of credit-card loans were either at
least 60 days delinquent or had gone into default, up from 6.4% a year earlier,
according to research firm RiskMetrics Group.

Taking a look at consumer loans (including installment loans such as auto loans), delinquencies are about average. They can and probably will get a lot worse. During the past two recessions, delinquencies have risen during recessions and have peaked a few months after the recession. In the past consumer loan delinquencies have been more volatile than residential mortgages. Consumer delinquencies rose sooner and faster leading delinquencies in mortgages. This time around, it is the mortgage delinquencies that are rising faster.

Per the Wall Street Journal: "Yesterday, the Federal Reserve reported an abrupt slowdown in consumers' credit-card borrowings. In December, Americans had $944 billion in total revolving debt, most of it on credit cards, a seasonally adjusted annualized increase of 2.7%. That was off sharply from seasonally adjusted growth rates of 13.7% in November and 11.1% in October."

Revolving debt has grown at a pace of 7.5% this year. Monthly changes in debt are very volatile. Last month’s slowdown is not uncommon. October and November’s numbers were artificially high. Just this April, debt slowed to a growth rate of 0.6%. However the months before and after were at 10.0% and 12.8%.

Consumer debt goes through very pronounced cycles. Looking at consumer debt growth over since 1952, growth usually slows dramatically during a recession. Personal Income usually leads changes in consumer debt.

Looking at the rapid increases in mortgage delinquencies and the relatively moderate levels of consumer debt, it points to the housing crisis as being the driving factor. Consumer debt will follow, but it is not the cause.

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