Inaugural Index Falls to Neutral Due to Slowing Consumer Credit Recovery and Bank Operating and Asset Quality Challenges
NEW YORK. - Thursday, October 17th 2013 [ME NewsWire]
(BUSINESS WIRE) Fitch Ratings today launches the Fitch Fundamentals Index (FFI) to track changes in the strength of the U.S. economy by monitoring the shifting credit fundamentals for key economic attributes. The FFI is based on Fitch’s proprietary data and complements credit ratings, but is not tied to any rating including the U.S. sovereign rating.
‘The FFI shows the fundamental drivers of the U.S. economy treading water right now,’ said Jeremy Carter, Fitch Ratings Managing Director. ‘If the political stalemate in Washington continues, or even escalates, we would expect to see a weakening of some of the fundamentals at year end.’
The U.S. FFI fell into the neutral zone (zero) in third-quarter 2013 (3Q’13) from slightly positive (+2) in 2Q’13 as the strengthening in consumer credit tailed off and the banking system score turned negative. The 10 credit fundamental indicators that make up the index are now equally balanced with three positive trends, three negative trends and four neutral, on a quarter-over-quarter basis.
The FFI tracks the changes in credit fundamentals across key sectors of the U.S. economy over the prior quarter and preceding 12 months. The current index does not incorporate the impact of the uncertainty regarding raising the debt ceiling.
The trend in potential drivers or constraints on economic growth or decline is indicated by the relative strength or weakness of the FFI, ranging from +10 to -10. The FFI’s components include mortgage and credit card performance, corporate defaults, high-yield recoveries, ratings outlooks, EBITDA and CapEx forecasts, banks, the CDS outlook, and transportation trend. Released quarterly, the FFI relies primarily on proprietary Fitch-sourced data.
The FFI shows significant correlation to the broader economy. The index fell sharply in 2005 before troughing towards the end of 2008, two quarters before GDP reached its nadir, then rose sharply before peaking in early 2010. The FFI has since leveled off, consistent with an economy recovering relatively slowly from the downturn than in past cycles. The FFI generally has a coincident relationship with the broader economy, although there is evidence that the index may have led the economy to some degree, at least in the recent past.
‘We are continually looking for ways to leverage the vast amounts of data generated in our daily ratings and research activities to help market participants. With over 1,300 analysts in 49 offices, there are unique opportunities for Fitch to connect developing trends in tangible and quantitative ways, beyond the ratings themselves,’ said John Olert, Fitch Ratings Chief Credit Officer. ‘The FFI continues Fitch’s efforts to complement the strong work done on the company and transaction level with how broader trends may aid or detract from current expectations. Providing a fundamental, holistic gauge of how underlying credit fundamentals for key sectors are interacting to influence broader activity seems a natural fit for Fitch given our breadth and depth across sectors, products, and regions.’
To learn more about the FFI, click here. For an interactive FFI experience, please visit ‘www.thewhyforum.com/ffi’.
Fitch Ratings is a leading provider of credit ratings, commentary and research. Dedicated to providing value beyond the rating through independent and prospective credit opinions, Fitch Ratings offers global perspectives shaped by strong local market knowledge and deep credit market experience. The additional context, perspective and insights we provide help investors to make important credit judgments with confidence. For more information, visit ‘www.fitchratings.com’.
Fitch Group is a global leader in financial information services with operations in more than 30 countries. In addition to Fitch Ratings, the group includes Fitch Solutions, an industry-leading provider of credit risk products and services, and Fitch Learning, a preeminent training and professional development firm. Fitch Group is jointly owned by Paris-based Fimalac, S.A. and New York-based Hearst Corporation.
Elizabeth Fogerty, +1 212-908-0526
Daniel Noonan, +1 212-908-0706