by Calculated Risk on 8/31/2009 01:35:00 PM

From Fitch: Consumer 'Signs of Life' Improve U.S. Credit Card Chargeoffs

U.S. consumer credit quality showed signs of life as credit card ABS chargeoffs declined last month, snapping a string of five consecutive record highs, according to the latest Credit Card Index results from Fitch Ratings.
...
'We still need to see some measurable improvement in the delinquency and personal bankruptcy figures and the employment situation overall before chargeoffs revert to more historical norms,' said Managing Director Michael Dean. 'For now, we expect chargeoffs to moderate at these elevated levels in the coming months.'

Chargeoffs had risen 45% from February through July and they still remain 63% above year earlier levels. Late stage delinquencies, or receivables more than 60 days past due, have held relatively stable albeit near record highs during the same period following a rapid increase over the prior six months that forewarned the chargeoff run-up.

Fitch's Prime Credit Card Chargeoff Index declined 24 basis points (bps) to 10.55% for the July collection period. ...

As a reminder, the bank stress tests assumed a cumulative two year credit card loss rate of 18% to 20% for the more adverse scenario (only 12% to 17% for the baseline scenario). Right now losses are worse than the more adverse scenario.

Also credit card loss rates tend to the track unemployment - so, as the unemployment rate rises into 2010, the credit card chargeoffs might increase some more.