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The battered U.S. economy could stabilize by the end of the year, according to a report on the credit card industry Moody's Investors Service released this week. But economic stabilization depends on the government quickly implementing economic-stimulus plans and reassuring consumers and financial markets that the policies will be effective. "All will take time to be felt, so the economy will remain in recession for most of the year, and unemployment and credit conditions will not reach their worst until next year," the report states. The $787 billion stimulus package President Barack Obama signed this week should improve the performance of credit card asset-backed securities because of the close link between credit card charge-off rates and national unemployment, Moody's says. Moody's expects the stimulus package to mitigate unemployment, which has been rising for several quarters. When the unemployment rate was 4.9% in December 2007, the charge-off rate on credit card receivables was 5.1%. The charge-off rate was 7.7% this past December, when the unemployment rate was at 7.2%, the report notes. The current economic climate, however, might amplify the charge-off rate as card-receivable balances contract, according to the report.
