Cash-strapped U.S. consumers are relying on their credit cards more and paying off their balances less.
Discover (DFS) reported 30-day credit card delinquencies—which had already far surpassed pre-pandemic levels—continued to tick higher in August.
“Credit card loan growth has decelerated from its December peak,” Macro analyst Drago Malesevic explains in this clip from The Call @ Hedgeye, “but we’re still at 17% year over year growth in August, which I think really speaks to the increasing reliance on revolving credit card balances, particularly among the more vulnerable segment of consumers, which Discover is over-indexed to in relation to its peers.”
The Great Financial Crisis was an example of positive survivorship bias – a period of bad credit led to a prolonged period of better credit. Now, we’re seeing the opposite: good credit generated during the pandemic has given way to widespread credit deterioration.
“The pandemic was really the mother of all bailouts for the most vulnerable of borrowers,” Malesevic explains, “and the conditions are firmly in reverse now.”
Watch the full clip above.