Report: Bank Card Defaults Highest in 6 years despite strong economy

S&P Dow Jones Indices and Experian released today data for 2018 through April for their Consumer Credit Default Indices. The indices represent a comprehensive measure of changes in consumer credit defaults and show that the composite rate decreased four basis points to 0.92%. The bank card default rate rose eight basis points to 3.86%. The auto loan default rate fell six basis points from last month to 0.99%. The first mortgage default rate declined by four basis points, to a level of 0.68%.

Four of the five major cities saw decreases in composite default rates in April 2018. Chicago had the largest drop, down 14 basis points to 0.90%. The default rate for Dallas fell nine basis points, to 0.82%, while the rate for New York fell five basis points to 0.90%. Los Angeles saw a one basis point decrease, to 0.59%. Miami was the only major city which experienced an increase in default rates, up 65 basis points to 2.78%.

The composite default rate for Miami has increased to its highest level in more than five years. Default rates have remained stable for the other four major cities.

Bank card default rates have been higher or unchanged for seven consecutive months, and now are at their highest level since June 2012. Auto loan and first mortgage default rates continue to remain stable.

“The overall economic picture is positive, with continued moderate growth, a further decline in unemployment to below 4%, and quite strong consumer sentiment,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Inflation remains at or below 2%, a level where most consumers tend to ignore small or periodic price increases. Among a wide range of economic indicators, there are two that hint of possible future concerns for some consumers. First, wage gains have not accelerated as the economy has improved. Average hourly earnings are rising at a 2.6% annual rate, only slightly faster than inflation. Second, home prices are increasing by 6% annually with some regions are seeing even larger gains. Neither of these has affected consumer credit defaults so far.

“Consumer borrowing is expanding as the economy continues to grow. Revolving credit – borrowing through bank and credit card accounts – is growing at about the same pace as the overall economy. Mortgage debt outstanding is rising at a similar pace. Non-revolving loans, including auto loans, are growing faster than the overall economy. As today’s modest default levels show, current debt levels are manageable. The fear is that when the next recession comes, debt levels will have climbed far higher while personal savings will have remained modest at best.”

The table below summarizes the April 2018 results for the S&P/Experian Credit Default Indices. These data are not seasonally adjusted and are not subject to revision.

The table below provides the S&P/Experian Consumer Default Composite Indices for the five MSAs: