NEW YORK—Composite and bank card default rates decreased in July, while other default rates remained virtually unchanged.
S&P/Experian Consumer Credit Default Indices show the composite rate posted a 0.92% default rate in July, down one basis point from the previous month. The default rate on first mortgages was unchanged from the prior month at 0.80%. The auto loan default rate stood at 0.86%, a one-basis-point increase from the previous month. The bank card default rate fell nine basis points to 2.79% in July. The second mortgage default rate was unchanged from the previous month at 0.55%.
Four of five major cities saw their default rates increase in the month of July. Chicago saw the biggest increase, reporting 1.15%, up 11 basis points from the previous month. Miami reported a default rate of 1.45%, up three basis points from June. Los Angeles and New York both recorded default rate increases of 1 basis point over the previous month, at 0.89% and 0.92%, respectively. Dallas was the only city in July to record a lower default rate compared to the prior month, reporting a 0.64%, down four basis points.
“The stable consumer credit default rates confirm the recent economic improvements seen in the unemployment rate and GDP growth,” says David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “Recent increases in outstanding consumer credit combined with stable default rates and strong consumer sentiment point to stable individual financial conditions. However, wage increases are running at about 2% annually – or under 1% after inflation – which means that there is little margin for error should the economy stumble. At the same time, concerns over the impact of an expected Federal Reserve rate increase are exaggerated. Interest rates on consumer loans are unlikely to be affected and no immediate economic fallout is anticipated.”
Default rates across different loan types continue to follow the same pattern: bank card defaults are about two percentage points higher than auto loans or mortgages, explained Blitzer.
“This pattern has been in place through the history of the indices and is unlikely to shift anytime soon,” he said. “Even the increase in the default rate for automobile loans was a scant one basis point. Chicago did see a small bump up in defaults, bringing rates to levels seen at the start of the year. However, given overall patterns, this is not a major worry. All five of the cities covered in the release have put the financial crisis behind them and are all at pre-crisis lows. The lack of any regional differences is another sign of improving individual financial conditions and a stable economy.”