The composite reading of the S&P/Experian Consumer Credit Default Indices rose again in January, representing the sixth uptick of the past seven months.
But it was the auto finance component of the overall index that propelled the continued upward drift.
According to data released this week by S&P Dow Jones Indices and Experian, the January auto finance default rate actually fell 3 basis points from December to 1.07 percent.
The composite rate — which represents a comprehensive measure of changes in consumer credit defaults — increased 4 basis points on a sequential basis to land at 0.95 percent in January.
So what is pushing that overall reading higher? It’s the continued climb of bank card defaults.
The bank card default rate rose 13 basis points in January to 3.57 percent. Analysts pointed out that bank card default rates are up 42 basis points since September and have now reached a nearly four-year high.
Simliar to the auto space, S&P and Experian noted that mortgage defaults also are steady, but the housing metric did rise 4 basis points in January to 0.72 percent to settle at a level almost identical to what the firms observed one year ago.
Turning next to take a look at large metro areas, analysts determined none of the five major cities saw a decline in composite default rates in January.
Miami registered the largest increase — up 29 basis points to 1.27 percent.
Chicago recorded an increase of 8 basis points to 1.23 percent, while Dallas ticked 2 basis points higher in January to 0.87 percent.
The default rates for New York and Los Angeles were both unchanged at 0.95 percent and 0.77 percent, respectively.
Despite the bank card turbulence, David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, offered an overall upbeat assessment of what the latest data showed.
“The economy is growing, consumers are bullish and they're spending money,” Blitzer said. “We are seeing the usual result of spending growth: modest increases in consumer credit defaults — especially in bank cards — and overall increases in the level of debt in the economy. Neither the defaults nor the amount of debt outstanding are immediate problems.
“The Federal Reserve is expected to continue raising interest rates,” he continued. “Home mortgage rates, which respond to movements in the financial markets, have risen from 4 percent to about 4.4 percent since the beginning of 2018. Although interest rates have increased, there are few signs of financial tightness or increased difficulties in qualifying for loans. Rates on bank cards tend to be more stable but higher than mortgage or auto loan rates.
“After several years of policymakers seeking to increase the rate of inflation, the last few weeks have shown fears of higher inflation creating turmoil in the stock market amidst sharply higher volatility,” Blitzer went on to say. “Neither inflation fears nor the turbulent market threaten immediate damage to consumer spending or borrowing.
“While roughly half of households in America have some exposure to the stock market through pensions, IRAs or similar retirement accounts, less than 15 percent directly own stocks,” he added. “Despite the current excitement about inflation, the actual rate of price or wage increases hasn’t changed much.”
Jointly developed by S&P Indices and Experian, analysts noted the S&P/Experian Consumer Credit Default Indices are published monthly with the intent to accurately track the default experience of consumer balances in four key loan categories: auto, bankcard, first mortgage lien and second mortgage lien.
The indices are calculated based on data extracted from Experian’s consumer credit database. This database is populated with individual consumer loan and payment data submitted by lenders to Experian every month.
Experian’s base of data contributors includes leading banks and mortgage companies and covers approximately $11 trillion in outstanding loans sourced from 11,500 lenders.