Stock markets went on a tear this week after strong U.S. consumer data gave more evidence the economy has so far avoided a recession.
New data from credit card lenders supports that narrative, analysts say, as the once-worsening trend of consumers struggling to pay their cards keeps stabilizing. Monthly data from large card issuers such as Capital One Financial, Discover Financial and American Express saw continued improvement, suggesting the losses they've suffered from card borrowers has peaked.
Consumers have seen a "bifurcation," as those with more debt struggled when interest rates first spiked, said Torsten Slok, chief economist at the investment firm Apollo. But borrowers seem to be getting used to interest rates staying this high, and the fact that the job market remains on track means their paychecks can still cover their card payments.
"All the data suggests that we are in a soft landing scenario," Slok said in an interview, crediting the Federal Reserve for "skillfully" managing the economy.
The new data from top credit card issuers signals they wrote off fewer loans in July. Loan charge-off averages at top credit card issuers fell to 2.14% last month, still elevated compared to last year but down from 2.23% a month earlier, according to RBC Capital Markets analyst Jon Arfstrom.
The data isn't comprehensive but offers a snapshot of loan quality at credit card issuers, including store-focused lenders such as Synchrony Financial and Bread Financial. The slight improvement from last month lines up with card issuer CEOs' views that "card losses are broadly peaking," Arfstrom wrote.
"We believe the industry is successfully navigating this environment," he wrote.
The number of consumers who became over 30 days late on their card payments did rise, but only by a blip. Average delinquencies rose to 1.34% in July, up slightly from 1.31%, Arfstrom wrote.
The tiny uptick in delinquencies also followed six straight months of improvement, noted John Hecht, a consumer finance analyst at Jefferies. Plus, the amount that cardholders paid back on their cards grew, another sign that the "consumer remains resilient," Hecht wrote.
The release of monthly card data coincided with higher-profile consumer data points that also showed resilience. Retail sales grew at a monthly rate of 1% to $709.7 billion in July, the Census Bureau said Thursday, as spending rose on cars, electronics, building materials, groceries and personal care stores.
U.S. consumer sentiment also rose at the start of August after months of declines, a report from the University of Michigan showed. The index rose to 67.8, up from July's reading of 66.4 and beating economist estimates.
Another barometer of consumer spending — Walmart's quarterly sales — rose to $115.3 billion in the second quarter, the retailer said this week.
The uptick could suggest that inflation-stung consumers are headed for Walmart's cheaper options. But it comes amid other signs that the consumer isn't showing much sign of slowing down, Apollo's Slok said, pointing to improvements in restaurant booking, air travel, hotel spending and Broadway show attendance.
"The bottom line is that there are still no signs of a U.S. recession, and the U.S. economy is doing just fine," Slok wrote in a note to clients.
Markets, meanwhile, are continuing to bet a softer economy will force the Fed to cut interest rates at a quicker pace than officials have forecasted. But the market is "making the same mistake it made" at the start of 2024, when investors thought the Fed was finally going to lower interest rates only to see the central bank decline to move, he wrote.
