S&P/Experian: Composite Default Rates Higher for 4th Straight Month

S&P Dow Jones Indices and Experian, New York, said their Consumer Credit Default Indices rose for the fourth consecutive month in October.

The report said bank card credit defaults largely drove the increase. But it also noted mortgage default rates also increased.

The composite rate increased two basis points from September to 0.90%. The bank card default rate rose 13 basis points to 3.28%. Auto loan defaults rose six basis points to 1.11%. The first mortgage default rate increased one basis point from September to 0.67%. The uptick in the national bank card default rate was the first monthly increase since May. All four census divisions recorded a rise in bank card default rates in October.

The report also said three of the five major cities saw their composite default rates rise in October. Chicago saw the largest increase, up eight basis points to 1.08%. Los Angeles increased seven basis points to 0.72%, while New York came in at 1.00%, up three basis points from September. The default rate for Dallas was unchanged at 0.78%, while Miami dropped to 1.06%, representing a 13 basis point monthly decrease.

David Blitzer, Managing Director and Chairman of the Index Committee with S&P Dow Jones Indices, said the auto and first mortgage default rates are both within three basis points of their levels from one year ago; however, the bank card default rate is now more than 50 basis points higher than the rate from one year ago.

“For the first time since January 2017, the default rates for autos, bank cards and mortgages all rose together,” Blitzer said. “The economy is doing well, with 3% GDP growth in the third quarter, stable inflation, low unemployment and retail sales growing at a 4% annual rate. Auto sales jumped in September after drifting lower for most of the summer and then pulled back slightly in October. The data does not suggest any unusual financial stress facing consumers which would explain the small, but across the board, increases in the default rates.”

Blitzer added monthly measures of consumer sentiment and expectations remain strong. “People are spending,” he said. “Auto sales, retail numbers and discretionary items such as restaurants are all gaining. Total consumer credit outstanding is growing at a 6.6% annual rate while revolving credit outstanding is rising at a 7.7% annual rate. The one concerning item, which might explain the default numbers, is recent softness in real disposable personal income. If a widening spread between income and spending appears, defaults may fill the gap.”