Man holding a credit card.

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August’s credit card metrics across eight U.S. issuers signaled continued credit normalization from unusually low levels during the depths of the Covid-19 pandemic, as lending growth remained strong driven by consumer demand and stubbornly high inflation.

Robust growth in the amount of borrowing during the month showed that consumers stayed in relatively good shape and kept spending despite the Federal Reserve’s aggressive moves to tighten financial conditions as well as mounting fears of a recession amid materially slow economic growth.

Looking at the matter through a different lens, consumer payments for August climbed further by 13% from a year before and +7% from July as utility and childcare costs increased. “Consumers are heading into the fall with solid spending and savings buffers,” said David Tinsley, senior economist for the BofA Institute. “While the drop in gasoline prices has boosted sentiment, consumers have been feeling some pressure from rising utility bills,” suggesting that inflation is still weighing on consumers’ purchasing power.

Meanwhile, credit card issuer’s delinquency rate, on average, came in at 2.04% in August, up from 1.89% in July and 1.50% a year ago, as seen in the table below. The average net charge-off rate, therefore, rose to 2.10% from 2.01% in the prior month and 1.82% in August 2021. The normalizing trends came as fiscal support programs that were extended to consumers during the pandemic have now mostly fade away.

“There is likely a balance between better loan growth yet higher funding costs while expenses could remain slightly elevated and credit continues to normalize over 2H22,” Oppenheimer analyst Dominick Gabriele wrote in a recent note to clients.

Of note, delinquency and net charge-off rates of Synchrony Financial (NYSE:SYF), Bread Financial (NYSE:BFH), formerly Alliance Data Systems and Citigroup (NYSE:C) trailed above the three-month averages.

For Capital One (NYSE:COF) and Bread Financial (BFH), both of which have outsized exposure to consumers with low credit scores, will likely see credit deterioration first among its peers, Gabriele contended, noting that “COF’s delinquency formation is now above their card NCO rate and trending back toward 2019 levels.”

In dismissing fears of a recession, Wells Fargo analyst Mike Mayo found that both noncurrent and 30-89 day delinquencies were within 5-6 basis points of record low levels, he wrote in a note, citing recently released Q2 data from the Federal Deposit Insurance Corporation. “Historically, delinquency data would start to trend up a few quarters before a recession, but that is not yet the case,” he explained.

As of Friday afternoon, Capital One (COF) (-32%), Synchrony (SYF) (-32%) and Bread (BFH) (-46%) all have been outpaced by the broader stock market (SP500) (-19%) by a wide margin year-to-date, while American Express (NYSE:AXP) (-9.6%) and Discover Financial Services (NYSE:DFS) (-16%) fared better, as seen in this chart.

Previously, (Sep. 8) consumer borrowing slid more than expected in July.

Company Ticker Type August July June 3-month average
Capital One (COF) delinquency 2.76% 2.56% 2.35% 2.56%
charge-off 2.02% 2.36% 2.20% 2.19%
American Express (AXP) delinquency 0.80% 0.70% 0.70% 0.73%
charge-off 0.80% 0.80% 0.80% 0.80%
JPMorgan (NYSE:JPM) delinquency 0.66% 0.66% 0.66% 0.66%
charge-off 1.15% 1.02% 1.18% 1.12%
Synchrony (SYF) delinquency 3.10% 2.90% 2.70% 2.90%
adjusted charge-off 3.10% 3.00% 2.70% 2.93%
Discover Financial (DFS) delinquency 1.96% 1.84% 1.76% 1.85%
charge-off 1.86% 1.90% 1.99% 1.92%
Bread Financial (BFH) delinquency 5.30% 4.80% 4.40% 4.83%
charge-off 5.30% 4.50% 5.40% 5.07%
Citigroup (C) delinquency 0.82% 0.79% 0.79% 0.80%
charge-off 1.33% 1.19% 1.10% 1.21%
Bank of America (NYSE:BAC) delinquency 0.88% 0.85% 0.84% 0.86%
charge-off 1.24% 1.27% 1.23% 1.25%
Avg. delinquency 2.04% 1.89% 1.78% 1.90%
Avg. charge-off 2.10% 2.01% 2.09% 2.06%

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