The new S&P/Experian Consumer Credit Default Indices is out finding that the overall default rate decreased three points last month. With credit card default rates falling 13 basis points, going down to 3.71%. Yet the auto loan default rate remained stable at 0.93%, and the first mortgage default rate dropped by three basis points, holding right now at 0.63%.
The S&P/Experian Consumer Credit Default Indices provide a picture of consumer credit defaults. “The favorable economic conditions consumers enjoyed in the last few years are confirmed by more than the current low levels of consumer credit default rates,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.
“Unemployment was falling to 4% or lower, inflation barely crept up after touching zero in 2015, and real (inflation-adjusted) earnings rose as wages outpaced inflation. The ratio of household debt service to disposable income stayed close to the lowest levels in three decades,” he added.
That said, the study also found that even with the numbers either heading downward or holding steady, they were still at a higher level than they were at the same time a year ago.
Miami, NYC, and Chicago shed defaults
When they looked at five major cities, they found that three out of five experienced downturns in their composite default rates last month. With Miami experiencing the biggest decrease, dipping 47 basis points, which represented the biggest, single downturn for an metropolitan statistical area (MSA) since June of 2013.
On the other hand, the rate of default for New York City went down 4 points, and Chicago’s default rate is down two points.
But while these three saw downturns, Dallas and Los Angeles had upturns in default rates, with LA experiencing a 3-point upswing, and Dallas showing a 4-point increase.
Second month for lower default rates
The indices showed the start of a trend – since May default rates for all loans, including credit, auto, and first mortgages, also dropped or stayed the same.
That said S&P Dow Jones Indices suggests that both inflation and interest rates may rise in the future. “The Federal Reserve’s reaction to the low unemployment rate was to raise interest rates to deter any increase in inflation. In the last month, the year-over-year rise in the consumer price index moved clearly above 2% and the Fed again raised its benchmark rate, the Fed funds rate, by a quarter percentage point,” said Blitzer.
“Oil prices are rising and may push inflation higher. Weekly unemployment claims continue to drop, pointing to a further decline in the unemployment rate. These trends explain why the markets are expecting further rate increases from the Fed. Today’s favorable consumer economy may be slowly shifting towards higher interest and inflation rates.”