The latest data on credit card performance are painting a disturbing picture. While the average credit card delinquency rate is slightly below prepandemic levels, the average net charge-off rate has surpassed the 2019 level, indicating a further decline in credit quality.

According to Jefferies analyst John Hecht, the higher net charge-offs in October are likely linked to the resumption of student loan repayments and ongoing inflationary pressures on consumers, resulting in a tough environment for borrowers.

Despite this challenging landscape, the total credit card loans across eight lenders registered a 1.2% month-over-month increase and a substantial 12% year-over-year growth, reaching approximately $483 billion. However, some institutions appear to be tightening their credit standards, with balances decreasing from a year ago at JPMorgan Chase, Bread Financial, Citigroup, and Bank of America.

The data also reveal a disparity in the credit metrics of different banks, with several institutions showing stronger credit quality than before the pandemic. Companies such as American Express, Citigroup, and Bank of America exhibit delinquency and net charge-off rates below those of October 2019. JPMorgan, while still having a delinquency rate below prepandemic levels, has seen its charge-off rate return to a more normal level.

Wolfe Research’s Bill Carcache is closely monitoring unemployment claims as an indicator of credit trends. He opines that credit card stocks may not reach their lowest point until initial claims peak, which is likely to occur approximately 12 months after the peak fed funds rate. This suggests that the labor market may experience prolonged weakness through much of 2024, despite the robust performance observed thus far.

Carcache specifically points to the re-acceleration of delinquency rate formations at Bread Financial and Synchrony Financial, along with the ongoing increase at Discover Financial, as evidence that the toughest challenges in consumer credit are yet to come.