The Federal Reserve Bank just reported the Consumer Loan Charge-off Rate (CLCOR) for the final quarter of 2019.
According to the data published on Tuesday, February 18, 2020, the total seasonally adjusted CLCOR figure for the 2019Q4 was 2.27%. In our previous post we had mentioned that it would be unlikely that the rate reaches anywhere close to 3% by the end of the year. Our estimates were predicting steady rise of the rate, hovering above 2% and below 2.5%. The average of all our predictions for 2019Q4 was 2.16% (-5% prediction error), and the most recent prediction figure for that quarter before publication was 2.28% (~0% prediction error).
Here are the predictions for the next four coming quarters:
Based on these estimates, we expect that CLCOR in 2020 follows a pattern similar to its slight upward trend in 2019. However, an external shock to the market because of domestic or global events (such as political feuds, epidemics, and armed conflicts, etc.) could completely change the scene. Our predictive model is designed to correct itself in case of observing such externalities. But, it is not easy to predict the Black Swan event, and that is the reality we all face.
The following figure shows the historical trend of CLCOR and the forecast values obtained from LM (Linear Model) and ECM (Error Correction Model) for the next four quarters. The ECM is our model of choice for this task.
Below, you can see the performance of our predictions against the actual values since 2015Q4 that we started predicting CLCOR on a regular basis.
More info about the performance is presented in a Tableau Visualization available here.