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Thursday, March 27, 2003

Oh, Oh: This Doesn't Look too Good

The rise in credit card bad-debt may be only a reflection of the wider use of the cards. The question is: if the lenders start to turn down the spiggots of consumer credit, what happens to US consumption? If the data keeps coming in as it has been the last few days, then I'd say a US recession this year (the infamous double dip) is looking more and more like a done deal, whatever happens on the Iraq front.

Mounting U.S. job losses pushed up credit card delinquencies in the fourth quarter of 2002 to the highest level since the American Bankers Association began tracking the data in 1990, the group said on Wednesday. Credit card delinquencies climbed to 4.07 percent of all accounts in the quarter, up from 4 percent in the third quarter of 2002, which was the previous high, the American Bankers Association said in a statement. "The rise in delinquencies is not surprising given the cumulative weight of layoffs and the poor prospect for reemployment in the face of anemic job growth," said James Chessen, chief economist for the ABA. Analysts said the bump in late payments reflects loans to a broader pool of borrowers rather than wider troubles with U.S. consumer credit. "Banks have now made credit available to a larger number of people at the low end of the income scale, so it's not a big shock that when the economy slows down and unemployment is high that these people get into trouble," said Douglas Lee, president of Economics from Washington.

Consumers tend to rely on savings and credit cards to get through financially tough times, and the final quarter of 2002 was such a period, the ABA's Chessen said. A composite index of consumer loans including auto and home equity loans rose to 2.16 percent of all accounts from 2.06 percent in the third quarter, the ABA said. Delinquencies on home equity loans rose to 1.64 percent. Rising consumer debt delinquencies add to signs that the U.S. economic recession of 2001 and its uncertain recovery have strained the finances of many Americans. Bankruptcies were at a record level last year. Mortgages in foreclosure also reached a record high in the last quarter of 2002, although mortgage bankers say the data shows the number of people unable to meet home loan payments may have peaked.
Source: Yahoo News

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