Oh, who's laughing now, recession? American Express (NYSE:AXP) reported a drop in year-over-year earnings, but credit quality and consumer spending habits sprang back from the train wreck numbers of earlier this year.

Net income came in at $640 million, or $0.53 per share, down from $815 million, or $0.70 per share, in the same period last year. The current results were boosted by a one-time $113 million after-tax gain. That in itself doesn't look great, but all the action is in the details:


Q3 2009

Q2 2009

Q3 2008

30-day delinquencies




Net charge-off rate




Total purchase volume

$156.6 billion

$151.4 billion

$175.5 billion

Average card member spending




Reserves for losses as a percentage of delinquent loans




This shows a pretty sweet three-way celebration:

  • Early stage delinquencies are improving noticeably.
  • People are spending more.
  • Provisions for losses are both growing and huge.

The uptick in total purchase volume, however slight, isn't just good news for AmEx's card processing unit, but bodes well for Visa (NYSE:V) and MasterCard (NYSE:MA), too. Unlike the credit card divisions at Citigroup (NYSE:C), Bank of America (NYSE:BAC), and JPMorgan Chase (NYSE:JPM), AmEx handles transaction processing, where profits are almost solely dependent on how much consumers spend, irrespective of credit quality.

But improvements on the credit-quality side are where investors should focus. Sequential declines in delinquencies led to a huge drop in net charge-offs. Charge-offs are still staggeringly high by any measure, but improvement in early stage delinquencies may hint at continued progress in net losses going forward. Another quarter or two of falling delinquencies could usher in a sizable gift to AmEx's bottom line.

Before you run out and throw a "RIP credit crisis" party, know that AmEx's focus on wealthy consumers puts it in a different league than other lenders. By and large, the credit card industry is still a big, ugly mess.

On that note:

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. American Express is a Motley Fool Inside Value selection. The Fool has a disclosure policy.