Monthly Archives: June 2016

Consumer-Credit Growth Isn’t All Good News

Consumer credit continues to expand at a healthy pace and defaults remain low; it is too easy for banks to become complacent

American Express credit cards.Consumer credit, excluding mortgages, leapt by an annualized 10% in March, according to the Federal Reserve.PHOTO: REUTERS

Aaron Back
Updated June 6, 2016

Consumers are stepping up their borrowing, an encouraging sign for near-term economic growth. But as the credit party heats up, there are emerging risks for lenders.

Consumer credit, excluding mortgages, leapt by an annualized 10% in March, by $29.7 billion, according to Federal Reserve data. Consensus forecasts for April’s figure, due Tuesday, are for a more subdued but still solid $18 billion.

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Economic Gauges Raise Specter of Recession

Closely watched indicators sour, as economists scramble to assess risk

Slipping auto sales are considered a sign of an economic downturn. Here, a car dealer in New York City’s borough of Queens. PHOTO: RICHARD B. LEVINE/NEWSCOM/ZUMA PRESS

By Ben Leubsdorf
Updated June 19, 2016 8:00 p.m. ET

Gut-wrenching gyrations in financial markets early in the year helped summon the specter of a new recession. Now, warning signs are coming mostly from the U.S. economy itself.

Hiring is slowing, auto sales are slipping and business investment is dropping. America’s factories remain weak and corporate profits are under pressure. All are classic signs of an economic downturn, and forecasters have certainly noticed. In a Wall Street Journal survey this month, economists pegged the probability of a recession starting within the next year at 21%, up from just 10% a year earlier. Some economists think the risk is even higher.

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Credit-Card Warning Sends Synchrony Shares Dropping

Consumer credit is starting to fray at the edges.

Lenders and credit-ratings firms are warning that credit cards, auto loans and student loans are weakening, suggesting that a new round of borrower delinquencies and losses for financial institutions could be on the way.
Synchrony Financial, the largest U.S. issuer of retail-store credit cards, increased its forecast for credit losses over the next year, saying some customers were failing to catch up on overdue payments. The increase in expected losses wasn’t huge — 0.2 to 0.3 percentage point — but it rattled investors who are nervously watching for a peak in the credit cycle.

Synchrony’s stock fell 13%. Shares of Capital One Financial Corp., another credit-card issuer, fell 6.6%, and Ally Financial Inc.’s dropped 5.6%.

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