Consumer credit defaults as well as mortgage defaults are up from reported rates in May according to data from June by S&P Dow Jones Indices and Experian for the S&P/Experian Consumer Credit Default Indices, a comprehensive measure of changes in consumer credit defaults.
Despite the increase in default rate percentage, David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, does not believe there is a cause for alarm. “Looking at the economy and credit conditions, American consumers are in good shape” says Blitzer. “The S&P/Experian Consumer Credit Default Indices covering mortgages and auto loans are within a few basis points of the lowest levels seen in 12 years, while the bank card default index is only 62 basis points above its low.”
Consumer credit defaults rose one basis point to a composite rate of 0.82 percent in June from the month prior. The first mortgage default rate reported was 0.65 percent with an increase of two basis points from the previous month.
“Despite the low default rates and positive economic conditions, some factors hint of future default rate increases. First, the bank card default rates have risen over the last 11 months and consumers continue to apply for additional accounts. Second, personal income growth is weak, only slightly ahead of inflation,” states Blitzer. “At some point, inflation will move back to the Fed’s two percent target or higher and interest rates could even creep up – events that could strain consumers unless gains in wages accelerate.”
Additionally, three of the five major cities saw their overall default rates increase during the month of June. For Dallas, a default rate of 0.74 percent was reported showing a rise of five basis points from May. Likewise, Miami’s default rate shot up for the fourth consecutive month with four basis points putting it at a default rate of 1.31 percent. In Chicago, the default rate increased three basis points from the prior month, sitting at a default rate of 1.01 percent. In contrast, New York reported a default rate six basis points lower than the month prior, 0.83 percent. Los Angeles showed a default rate of 0.67 percent, leaving it unchanged from the month before.
“Economic conditions are also favorable with continued low inflation and low interest rates, declining unemployment, a rising stock market and modest economic growth,” says Blitzer. “Consumers recognize the positive environment: consumer confidence is high and retail sales were up in June.”