Fitch: Cheap Gas, Jobs Push US Credit Card ABS Near Records

The decline in oil prices and strength of the job market may propel some prime credit card metrics into new record territory, Fitch Ratings says. We believe the decline in oil prices could indirectly lower delinquency levels by easing consumer budget pressures. However, retail credit card metrics are unlikely to see the same impact. And the strength of the job market, historically, correlates to ABS credit card performance.

The oil price decline seems likely to result in a decline in gasoline prices and heating oil this winter. Crude oil briefly fell below $28/bbl before recovering this week. And, on Jan. 20, the Bureau of Labor and Statistics (BLS) reported that the seasonally adjusted CPI for All Urban Consumers declined by 0.1% in December on price declines in food and energy. We expect this to exert downward pressure on delinquency levels in the near term. However, a rise in oil prices in the medium term would probably not affect other metrics. On Jan. 20, 2016 Fitch lowered its 2016 base case oil price to $45/bbl and its long-term base case price to $65/bbl.

The strength of the job market is also having a positive impact on credit card ABS metrics. Last month BLS said that total nonfarm payroll employment rose by 292,000 in December, leaving the unemployment rate unchanged at 5%.

Prime chargeoffs are expected to increase for the fourth straight month, while 60+ day delinquencies slip slightly. However, prime gross yield and monthly payment rate (MPR) may hit records. Gross yield will likely increase and may reach a four-year high. MPR is likely to increase and could reach its all-time high.

Retail 60+ day delinquencies and retail gross yield are expected to decline marginally. Chargeoffs and MPR are expected to rise but stay in their recent, healthy range.

This preliminary data reflect the December reporting period (as of Dec. 30, 2015) and January distribution date. Actual results will be available in early February.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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