Retail credit card accounts might experience higher chargeoff levels this year. This segment of the credit card business is more volatile than prime credit card accounts and are sensitive to economic pressures, Fitch Ratings said in a new credit card performance index.
The newly launched Retail Index, which starts off with three years of historical performance data, has been experiencing an upward trend in chargeoff levels. It currently stands at 6.11%. Compared with absolute chargeoffs of 4.21% in the prime market and 9.23% in the subprime sector, it follows an across-the-board trend of increasing losses that is expected to continue through 2007. In recent months, wrote Fitch analysts, all three credit card sectors have seen gradual increases in delinquencies of 60 days or more.
Furthermore, delinquencies in the retail credit card sector stand at 3.88%, although monthly payment rates remained high historically. In 2006, however, the metric showed a gradual decline, possibly owing to increased economic pressures affecting subprime borrowers among retail credit card holders.
Americans increased their use of revolving credit by about 11.9% in November, according to statistics from the Federal Reserve cited in the report.
"While this can be partially attributed to growth in retail sales, Fitch Ratings believes this may be indicative of an increased demand for revolving credit as consumers reduce home equity withdrawals," Fitch analysts wrote.
Several aspects of the overall economy continue to generate concern, specifically inflation and wage dynamics. In December, the unemployment rate was flat, at 4.5%. Income growth, however, was up just 0.5% in December, and it is contributing to concerns that upward pressure on wage growth could trigger more inflation.
