Investors beware, the US economy is flashing a warning sign that could mean we are headed for a downturn. Credit card companies are starting to grow nervous as the net charge-off rate, or the percentage of loans that credit card issuers write off as a loss, has just hit its highest level in four years, a continuation of several quarters of the rate rising. The trend hit all major card issuers and is starting to eat into bank earnings. The current rate is 3.29%, but it is still a long way from the peak hit in 2010—10%. The rate had dropped for 24 straight quarters during the recovery, until a reversal in recent quarters.
FINSUM: Higher default rates are likely a sign that consumer spending is headed for a weaker period. Many sectors could be hit by this and it could be the canary in the coal mine of a possible recession.