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Consumer Credit Default Rate Remains Stable

When people pay their bills on time it’s a sign the economy is strong. When…

  • December 11, 2018

When people pay their bills on time it’s a sign the economy is strong. When people stop paying their bills, consumer credit defaults rise and the experts know it’s time to prepare for a possible recession. It’s a good thing, then, to learn that most Americans are paying their bills on time.

We learn this from S&P Dow Jones Indices and Experian, who have released data through October 2018 for the S&P/Experian Consumer Credit Default Indices.

The indices represent a comprehensive measure of changes in consumer credit defaults and show that the composite rate was unchanged from the previous month at 0.82%.

The bank card default rate dropped five basis points to 3.09%. The auto loan default rate increased three basis points to 0.92%. The first mortgage default rate was unchanged at 0.63%.

Two of the major MSAs had higher default rates in October 2018. The rate for New York increased five basis points to 0.84% while the rate for Dallas is up four basis points to 0.77%.

The default rate for Los Angeles was unchanged at 0.56%. Two MSAs showed lower default rates. The rate for Miami fell 11 basis points to 1.45% while for Chicago, the rate decreased one basis point to 0.84%.

October 2018 marked the sixth consecutive month of lower bank card default rates. The rate is down 77 basis points from its April 2018 peak.

This has been the primary contributing factor to the concurrent decrease in the composite default rate.

At 0.82%, the composite rate has not been lower since May 2016.

“Continued good economic results are supporting rising consumer spending without any siginificant increase on consumer credit defaults,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

Blitzer continued, “Compared to a year earlier, default rates in the three major categories – mortgages, auto loans and bank cards – are down. On a monthly basis, auto loans saw a small rise while the bank card defaults dropped and mortgages were unchanged. While two of the five cities reported here saw an increase in October compared to September, four out of five cities have default rates lower than October 2017.

In other words, things are looking pretty good for now.

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