According to Goldman Sachs, credit card businesses are incurring losses at the quickest rate in over 30 years, outside of the Great Financial Crisis.
Credit card losses peaked in September 2021, and while the first rises were most likely stimulus-induced, they have been quickly climbing since the first quarter of 2022. Since then, the rate of loss has increased at a rate not seen since the 2008 recession.
The company expects that it is far from over.
Losses are presently at 3.63%, up 1.5 percentage points from the low, and Goldman forecasts another 1.3 percentage point increase to 4.93%. According to the Federal Reserve Bank of New York, Americans owe more than $1 trillion on credit cards, a record high.
Credit card losses are increasing at the highest rate since the Great Recession.
“We think delinquencies could continue to underperform seasonality through the middle of next year and don’t see losses peaking until late 2024 / early 2025 for most issuers,” analyst Ryan Nash said in a note Friday.
He noted that the losses are rising outside of an economic slump, which is rare.
Three of the last five credit card loss cycles, he claims, were marked by recessions. The two that happened while the economy was not in a slump were in the mid-1990s and from 2015 to 2019, according to Nash. He calculated future losses using historical data.
“In our opinion, this cycle resembles the characteristics of what we saw in the late 1990s and is somewhat similar to the ’15 to ’19 cycle in which losses increased following a period of strong loan growth and has seen a similar pace of normalization thus far this cycle,” Nash said.
According to history, losses tend to peak six to eight quarters after loan growth peaks. That suggests that the credit normalization cycle is just halfway through, resulting in the late 2024, or early 2025 projection, he added.