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U.S. credit metrics continued to deteriorate in the first quarter, according to a new report from Morningstar DBRS that examined the results from the major U.S. credit card issuers.

The rating agency reported that credit performance was weaker in the first three months of 2024, as the weighted average net charge-off rate rose to 4.2% from 3.6% in the fourth quarter of 2023 — pushing the rate higher than it was before the pandemic.

DBRS said the weighted average 30+ day delinquency rate was “essentially flat” on a quarter-over-quarter basis in Q1, but that it was up by about 70 basis points from the same quarter last year, and is now about 60 basis points higher than the comparable pre-pandemic periods.

“Given our current outlook for the U.S. economy, we continue to expect further weakening in the U.S. credit card sector’s credit performance but stabilization to within normalized levels towards year-end to early 2025,” the report said.

DBRS also noted that credit card balances grew by 11% year over year in the first quarter. While the annual growth rate remains high on a historical basis, the rate slowed for the seventh straight quarter, it said.

Additionally, credit card volumes accelerated slightly in the first quarter, the report said, but it noted that spending was largely driven by higher-income households, while inflation increasingly weighed on spending by less-affluent households.

“Positively from a credit perspective, some issuers have observed that these [lower-income] cardholders are slowing their spending rather than increasing their leverage/borrowing to keep up with their prior spending habits,” it said.

While the first-quarter results remain consistent with the issuers’ existing credit ratings, “We continue to see a potential contraction in the U.S. economy as a result of a higher for longer interest rate environment as being the key downside risk to our outlook for the U.S. credit card issuers,” the report concluded.