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Business Title: Consumer Deliquency Rates Dropping May 28 (Bloomberg) -- Consumer delinquency rates are dropping at U.S. retailers and banks such as American Express Co. and Bank of America Corp., signaling an incipient lending thaw that may spur economic growth. Past-due loans at Bank of America, the second-largest card lender, fell for a fifth month in April and by the most in four years, while AmEx’s delinquencies were down 34 percent from a year earlier. Target Corp., the second-largest U.S. discount retailer, last week reported its lowest delinquency rate in the latest quarter since the second quarter of 2008. With fewer tardy borrowers to worry about, banks are more likely to extend fresh credit to American consumers, whose spending makes up 70 percent of the economy. That may weaken Federal Reserve Chairman Ben S. Bernanke’s commitment to an “extended period” of low interest rates -- once policy makers determine the European debt crisis no longer poses a risk to the recovery, said economist Stephen Stanley. “Then we get back to the scenario where the U.S. banking system is gradually healing, credit quality is gradually improving and creditworthiness of borrowers is improving,” said Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “Some evidence of stability in the banking sector is an additional precondition to normalizing monetary policy.” U.S. central bankers on April 28 kept the benchmark federal funds rate in a range of zero to 0.25 percent, where it has been since December 2008, and said “subdued” inflation and high unemployment are likely to keep rates “exceptionally low.” They repeated their assessment that consumer spending was likely to be restrained by “tight credit.” ‘Reasons for Optimism’ Bernanke, in a May 6 speech in Chicago, said bankers’ attitudes on lending “may be shifting,” citing as “reasons for optimism” the economic recovery and expectations among senior loan officers for a “modest reduction” in troubled loans. The comments were overshadowed by that day’s 9.2 percent intraday plunge in the Dow Jones Industrial Average, which was sparked in part by concerns about euro-zone defaults. “The Fed chairman is getting closer to saying the economy has reached a turning point, and the confidence he expressed was overlooked due to the market’s extreme volatility,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “When we look back some months from now, his remarks may be seen as prescient in forecasting a sustainable economic recovery.” Loan Officer Survey The Fed’s latest survey of senior loan officers, released May 3, showed the smallest proportion of banks in two years restricted lending standards in the first quarter. Other Fed data released May 7 showed consumer borrowing unexpectedly rose in March for the second time in three months, signaling Americans are becoming more optimistic about the recovery. “One of the factors the Fed watches when deciding when it’s appropriate to begin normalizing rates is when banks stop tightening lending standards,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “This is starting to happen.” Economists surveyed by Bloomberg between April 29 and May 10 cut their forecasts for Fed rate increases to a quarter point rise in the fourth quarter from the half point gain forecast in the month-earlier survey. “If lending standards start to stabilize, that’ll be another reason to remove the emergency measures, including the zero rate,” said Jay Bryson, a senior global economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who formerly worked at the Fed in Washington. Target Profits Minneapolis-based Target reported May 19 that credit-card loans more than 60 days overdue declined to 5.3 percent of the total in the first quarter, from 6.3 percent in the previous period, helping it post profits that beat analysts’ projections. Citibank’s new U.S. card account originations fell 17 percent in March from a year earlier, about half the 35 percent drop posted in January. Originations climbed 3 percent in February, which was the first annual gain since the data started being reported in Oct. 2008, according to the Treasury’s monthly lending report. “The fundamentals here in the U.S. are suggesting the Fed should already be on a path towards tightening,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, which manages about $30 billion in client accounts. “They should already be taking some action to be preparing to raise rates; however, the drama overseas is likely to encourage policy makers to pursue a cautious path.”
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I have a chart somewhere that shows lending stays tight with unemployment above 7.5%. It's 20 years old tho.
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