337,000 New Jobs Can't be Wrong for U.S. Credit Card ABS

Concerns of a sluggish labor market and declining consumer fundamentals have abated somewhat with the creation of 337,000 new jobs during October, which bodes well for the U.S. credit card asset-backed securities sector, according to Fitch Ratings in its latest edition of ‘Credit Card Movers & Shakers’.

‘Future concerns center on rising interest rates, high energy prices, fading tax cuts, limited home equity withdrawal and an uncertain labor market as they all play a role in consumer spending,’ said Richard Drason, Director, Fitch Ratings. ‘That being said, the labor markets remain key as continued improvements are a positive factor for consumer sentiment and consumer financial profiles.’

Prime chargeoffs fell 40 basis points (bps) for the September collection period to 5.73%, 76 bps below year-ago levels and the lowest level in over two years. Subprime chargeoffs followed suit by plummeting 154 bps to 14.70%, its lowest level since March 2002 and 210 bps below last year’s levels.

Excess spread remained unchanged at 6.62%, 23 bps higher than year-ago levels. ‘Excess spread could be pressured by rising costs as interest rates continue to tread higher, though improving delinquencies and chargeoffs may help to mitigate the higher funding costs,’ said Drason.

The latest edition of ‘Credit Card Movers & Shakers,’ which covers the latest trends in the credit card ABS market, is available on the Fitch Ratings web site at www.fitchratings.com in the ‘ABS’ sector page under ‘Newsletters’.