Analysts James Fortheringham and Aman Gherger of BMO Capital Markets believe that the auto loan and credit card debt growth will slow over the next couple of years. The two made their market predictions in “Stop Fretting About Credit Card and Auto Lending,” a research note they published on April 12. They cite falling unemployment rates as the driving force behind the slowdown.
The two go on to state that they believe the concerns investors have about auto loan and credit card debt are unwarranted, using a macroeconomic regression model to show how they believe consumer credit quality will improve as unemployment rates decline.
In regards to credit cards, they believe steady employment and job growth will improve the loan net charge-off rates by a small amount, while credit card debt will continue to grow but will also slow.
In the auto loan industry, Fortheringham and Gherger anticipate the net charge-off rates will remain at the current level through 2018. Auto loan growth, like credit card debt, will continue to remain in the positive but will fall off by a good amount as car sales slow. Overall, they believe consumer spending will moderate itself.
The BMO analysts took account of a variety of data to create these forecasts, including the change in the number of car sales, unemployment rates, consumer spending, and other statistics gathered from sources such as the US Bureau of Economic Analysis and the Bureau of Labor Statistics.
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