We take a look at flow rates from one bucket to another. So those would all be certainly signs as well as kind of the broader indications of delinquency and the rate of charge-off on a vintage basis.But as we look at things right now, employment, I believe, will continue to be strong, right? So we have strong growth in the health care sector, manufacturing sector, defense, oil and gas, and onshoring of supply chain continues. So my sense is that we’re not going to have any seismic changes to unemployment despite the fed tightening action.So that means that we’ll look at — continue to look at things around the margins and make good calls to ensure that the accounts we’re putting on are profitable. And the accounts that are in the portfolio that we have early warning triggers, so that our customer service and collection folks can reach out to ensure that collections and cash flows remain strong.Jeff Adelson Thank you.
And one follow-up I just want to have on expenses and technology investment. There’s been a lot of focus out there on AI and some advances in that technology. I know Discover has been pretty nimble and investing on its own in that space. But just wondering, is there anything — John Greene Hello. Jeff or operator? Is the line open?Operator Yes. His line is still open. John Greene Okay.Eric Wasserstrom Jeff, I think we missed the last a little bit of your question, but I think it was essentially about the use of AI. So.John Greene Yes. So why don’t I — I’ll take that briefly. And Jeff or Betsy, we can follow up separately in the afternoon, if you like. So in terms of investing in technology. So there’s three — there’s, I’ll call it, three or four different strengths.The first is to ensure we have leading-edge capabilities, which would include machine learning, AI.
Second is ensure that our core systems are robust and resilient. And third, around the network, making sure that our network continues to have leading edge or at a minimum market global capabilities.So, those are the tiers and we continue to invest in those aspects as well as technology to support our overall compliance management system as we talked about in the prepared remarks.So, overall, it’s an area of investment. We’re a digital institution. We need to continue to invest in technology to ensure that we keep capabilities, advancing.Jeff Adelson Okay. Thank you.Operator Thank you. Our next question will come from Dominick Gabriele with Oppenheimer. Your line is open.Dominick Gabriele Hey, thanks so much and good morning. I would imagine that Discover, given the prudence of the way you run your franchise has really strong KYC.
And I think some of the fintech players are actually having some difficulty there. And so I’d love to hear you talk about your checklist for opening an account. And is there a difference for KYC when you issue a debit card versus extending credit with the credit card? And I just have a follow-up. Thanks so much guys.Roger Hochschild Yes. Great question. So, AML BSA, KYC is one element of compliance. There are many others that we focus on. First thing I’d say is our task might be a little easier just given that we don’t handle much cash, not having branches. We don’t have huge private net worth operations, much outside the US. But it is a key area of focus, there’s a pretty big overlap between what we’re required to do from a KYC standpoint and actually what we do ourselves to tackle fraud.A huge amount of the new fraud attacks do come via identity theft.
And while there are sort of nuanced differences by product, very, very similar in terms of what we do when someone is opening a new credit card account versus opening a checking or a debit account.Dominick Gabriele Okay. Thanks. Thank you very much. And I guess, kind of a double question here. But is — how closely aligned is your CECL unemployment rate and thus, reserve outlook correlated with your net charge-off guidance. Is there a possibility that, I mean, you had mentioned before that you don’t expect unemployment rate to rise very much? Is there a chance that there could be actually a disconnect between the CECL reserve and company NCO outlooks? Thanks so much.John Greene Yes, thanks Dominick. So, yes, we have a process that we take great pains to make sure there’s no disconnects between our outlook on kind of charge-offs over, call it, a three-quarter or four-quarter period and the CECL reserves, which is life of loan losses, which would include charge-offs through the life of the relationship.
And the modeling systems that we use are essentially the same. Same tools, same people kind of managing those and a bunch of work to ensure that the organization. So each of the functions, credit and risk management systems and finance and accounting are on the same page in terms of what we’re trying to accomplish here.So there’s no chance to disconnect here at Discover. I will say that the difference in terms of the tightening of our charge-off outlook in terms of updated guidance and what happened in the reserve has a couple of factors that are at play there. The first is, we’re talking about a three-quarter period of forecasting on the charge-offs. And we gave a fairly wide range, which we intend to tighten as each quarter passes.On the reserves, we take a number of different factors, including the macro environment portfolio.
