MasterCard exec sees promising trend in consumer spending

DES MOINES, Iowa -- Consumers may be starting to spend enough to stop the backward slide that's been typical so far this year, a MasterCard Inc. executive told analysts Thursday.

Chris McWilton, the company's president of U.S. markets, said data to be released in the next week shows the decline in spending that has hit the retail and credit industries hard may be abating.

"It's not positive yet, but certainly the trajectory, the free fall that we saw in January and February of this year has abated," McWilton said in a conference call with analysts.

He said consumers are spending money on essentials, including groceries and prescription drugs, and purchases of fast-food meals. They are not spending money on furniture, appliances and luxury retail items.

"I think this all makes sense. The U.S. consumer is just trying to get through this difficult period and get to the other side, get the unemployment rates down, get some confidence back into the system," he said.

Banks that offer credit cards continue to see increasing rates of charge-offs -- debt that is written of as lost after six months of nonpayment, McWilton said.

He said the level of charge-offs increases as unemployment climbs. Since unemployment is expected to climb slightly higher before tapering off next year, the losses for MasterCard's bank customers will likely continue.

"They are dealing with very difficult times and certainly staggering amounts of credit losses, particularly those that played in the low-prime and subprime categories," he said.

Banks are dealing with the trend by spending less money to add new accounts and efforts to attract new business.

Also Thursday, Fitch Ratings analysts reported that the rate of delinquent credit-card payments slowed in May, ending a four-month trend of setting records.

Even though consumers were doing a better job of paying their bills, delinquency rates remained elevated at near record levels and nearly 40 percent above year-earlier rates. For the month, Fitch's delinquency index, which measures receivables more than 60 days past due declined to 4.37 percent.

The delinquency results come as charge-offs set record highs. Fitch's Prime Credit Card Chargeoff Index climbed to 9.66 percent, which is 51 percent above year-earlier levels.

Fitch expects charge-offs to exceed 10 percent over the next few months, and to remain elevated through the first quarter of 2010, when unemployment is expected to peak.

Last month MasterCard reported its first-quarter profit fell 18 percent although results were better than analysts polled by Thomson Reuters had expected.

Despite a weakening global economy, MasterCard still saw growth in the number of processed transactions -- up 6 percent to 5.1 billion. However, the dollar value of those transactions fell 10 percent, primarily due to foreign currency exchange fluctuations.

MasterCard shares rose 89 cents to close earlier at $168.40. They have traded between $113.05 and $309.60 in the past 52 weeks.