The U.S. economy is growing at just 2.5 percent a year, but credit card lending is rising more than twice as fast: 5 percent over year-earlier levels each month since last fall, accelerating to 6 percent in March and April, according to the Federal Reserve.
Thats the fastest card debt has grown since card lending fell in the 2007-2009 recession, credit card analyst David Hilder wrote in a report to clients of Drexel Hamilton.
Since Americans arent earning that much more, wont delinquencies, charge offs and bankruptcies rise in another year or two?
We do not expect a rapid increase in credit-card loss rates, Hilder wrote, since debt service has been flat at around 15 percent of Americans disposable income since 2012.
Thats near the lowest debt ratios have been since the Feds Debt Service Ratio survey began in 1980.
For the nine dominant U.S. credit card banks, which control 70 percent of the Visa-MasterCard-American Express-Discover-Chinapay market in the U.S., average charge offs in early 2016 were 3.13 percent of annualized average loans, down from a peak of 9.9 percent in 2009.
Bad mortgages were also at low levels in the mid-2000s after a lot of new loans were made but before they had a chance to go bad making loss measures a poor predictor of the 2008-09 credit crisis.
Loan-loss rates are highest not when bad loans are made, but when they stop getting paid which can take a year or two from the time when the bills were run up.
Loan losses can be masked by aggressive new lendingand exaggerated at banks that stop making new loans, allowing loss rates to mount.