More evidence mounts showing credit card delinquency is steadily rising. The bank credit card default rate recorded a 3.31% rate in March, up nine basis points from February. This is the fifth consecutive month for the ratio to rise.
The S&P/Experian Consumer Credit Default Indices, a comprehensive measure of changes in consumer credit defaults, shows the composite rate unchanged from last month at 0.94% in March. Auto loan defaults came in at 1.00%, down five basis points from the previous month. The first mortgage default rate came in at 0.75%, up one basis point from February and reaching a one-year high.
The five major cities showed mixed results in March with two higher and three lower default rates. New York had the largest increase, reporting 1.09%, up 15 basis points from February. Chicago reported 1.05% for March, rising six basis points from the previous month. Miami came in at 1.40%, down two basis points from February. Dallas reported a decrease of four basis points at 0.79%. Los Angeles saw its first default rate decrease since September 2016, down five basis points at 0.75%.
The National bank card default rate of 3.31% in March sets a 45-month high. When comparing the bank card default rate among the four census divisions, the bank card default rate in the South is considerably higher than the other three census divisions. Upon further analysis to the South’s three census regions, East South Central – comprised of Kentucky, Tennessee, Alabama, and Mississippi – has the highest bank card default rate.
Data from the Federal Reserve shows that consumer credit continues to expand at more than 6% per year, the highest pace since 2007-2008. Other Federal Reserve data indicate that household net worth in 2015 and 2016 rose 2.3% each year.
Currently the debt service ratio for consumer credit – the percentage of disposable income required to service consumer credit debt – is 5.58%, up from its recent low of 4.92% in 2012 but lower than the 6.01% peak seen shortly before the financial crisis. The higher interest rates that most analysts expect over 2017-2018 are likely to combine with continued growth in consumer credit to push the debt service ratio back towards the 6% level.