The credit card industry suffered another major blow in August as losses skyrocketed over news of higher unemployment figures. Analysts say that major card companies have reported higher charge-offs and losses last month compared to previous months. The main reason, they point out, is the worsening job market and unemployment rate in the U.S. Federal government agencies say that the jobless rate reached a 26-year high of 9.7 percent this August. There are fears that the 10-percent mark may be breached by the end of the current year or earlier next year.
News of the worsening job situation resulted in higher charge-offs and defaults last month, according to sources from the major card firms. Based on the data provided by major card companies in the U.S. credit card industry, the national charge-off rate average in August climbed to 10.62 percent, an increase of 81 basis points. The sudden hike last month managed to recover the 31 basis points decline in charge-offs in July. Retail credit cards have also seen charge-offs increase to 9.99 percent, up from 9.50 percent the month before.
Despite the overall increase, some card companies have reported declining losses. Experts say that the improvement in charge-off rates for some card firms can attributed to the credit industry's rally in July. Analysts say that industry players can expect to rise losses in the closing months of the year because of the unstable job market.
Credit experts have long relied on unemployment figures to predict industry losses and charge-off rates. According to analysts, charge-offs and defaults usually climb significantly along with rising unemployment figures. Leading financial firms warn that the charge-off rate may reach 11 or 12 percent early next year as the labor market continues on a downward trend. Despite this, analysts and economists are hopeful that the economic situation will improve in the long run, possibly leading to lower losses for the card industry.
Experts also point out to new policies, practices, and protection plans being implemented by card companies. They explain that these measures are designed to cushion the effects of the mounting losses card firms are experiencing. In addition to the safety measures being implemented by the credit industry, card issuers are also slashing credit lines and closing down inactive or risky card accounts to mitigate further losses. Sources from different card companies, however, express apprehension over the implementation of the new rules designed to curb unfair practices of the credit card industry.