Consumer credit default rates are rising, report finds

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But defaults on credit cards actually went down in September

Consumer credit defaults, as measured by S&P Dow Jones and Experian, rose again in September for a third straight month.

The index shows consumers seemed to have the most difficulty paying their car loans and mortgages. However, the default rate on credit cards actually fell 41 basis points to 3.32 percent.

Even though the default rate on car loans and mortgages went up, the increase was slight and the total remains very low. The default rate on auto loans is only 1.05 percent, and on mortgages it’s even less -- 0.73 percent.

Credit card defaults went down even though consumers increased their debt in the second quarter of the year. Consumers began the year owing more than $1 trillion on their credit card accounts, but they managed to repay $38.2 billion collectively in the first three months of the year.

Consumer financial health

The numbers are somewhat reassuring about the financial health of the consumer. While business leaders have recently expressed concern about a slowing economy, unemployment remains low and consumers appear to be paying their bills.

Of course, economists point out that the consumer is often a lagging indicator when things turn south. In other words, consumers are often the last to feel the pain. Bloomberg economists said this week there is a 25 percent chance the economy slips into a recession next month, the highest those odds have been since April. 

JPMorgan Chase CEO Jamie Dimon is more emphatic. In a conference call with reporters following the bank’s third-quarter earnings release, Dimon said there is little doubt a recession is in the future, largely due to the ongoing trade dispute with China.

But the banker said he sees no indication that consumers are under any strain, saying “the consumer is doing fine.”

Geographic disparity

The S&P Dow Jones/Experian index also pinpoints default activity geographically. In September, it found three of the five major metropolitan statistical areas ("MSAs") showed higher default rates compared to the previous month. 

Chicago led the increase in defaults, rising 14 basis points to 1.19 percent. The default rates for New York and Miami each rose two basis points to 0.96 percent and 1.30 percent, respectively. The rate for Dallas was unchanged, while Los Angeles actually recorded a decline in default rates.

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