Fitch: US Employment Pushing Consumer ABS Metrics to Records
For the week ended June 13, initial jobless claims reported by the U.S. Department of Labor declined 12,000 to 267,000, nearing post-recession lows reached in April and marking 15 consecutive weeks of filings below 300,000. Earlier this month, The Bureau of Labor Statistics reported that unemployment for the month of May was 5.5%, down from 6.3% for the same period one year ago. In addition, total nonfarm payroll employment increased by 280,000 in May, compared to a 12-month average of 251,000 jobs per month. We expect tightening of the labor market to continue to support the performance of consumer ABS.
In the short run, we expect credit card ABS prime gross yield and prime monthly payment rate (MPR) to improve, in line with seasonal trends. Prime 60+ day delinquencies are expected to decline near historic lows. Prime chargeoffs are expected to increase slightly as this metric slowly normalizes.
Credit card ABS retail chargeoffs and 60+ day delinquencies will likely improve from the previous month's levels, with delinquencies falling to record lows. Retail gross yield and MPR are expected to decline slightly compared to last month, but the magnitude of these changes is expected to be small.
Our view of the credit card metrics is based on preliminary data from the June distribution date. Actual results will be available in early July.
Based on 1Q15 results, we believe most student loan metrics will continue to improve, in part due to the decline in unemployment and improvement in the overall economy. We also believe the expansion of debt consolidation programs and portfolio seasoning could lead the prepayment rate to pick up in the longer term. Annualized default rates on private student loans have levelled off, and we expect them to stay at their current levels in the near term. Loans originated after the crisis will perform better, as they have tighter underwriting criteria.
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