June auto default rate sets 10-year low
Perhaps the auto loan component of the S&P/Experian Consumer Credit Default Indices is becoming a game of “how low can you go?”
A month after the rate tied a 10-year low, S&P Dow Jones Indices and Experian released data through June on Tuesday and determined auto loan defaults decreased 3 basis points from the previous month to settle at 0.82 percent. The May reading tied for the lowest mark analysts have seen during the past 10 years. In June 2015, the auto finance default rate also stood at 0.85 percent.
Along with establishing a new low point, the June auto default rate made it three consecutive months where it landed below 1 percent.
The new low record might not last, as the rate has made an upward movement from June into July during five of the past eight years. The most pronounced rise in the cyclical pattern arrived in the immediate aftermath of the Great Recession, when the rate in June 2009 of 2.18 percent jumped to 2.46 percent a month later.
Turning back to this June’s information, analysts noticed the composite rate — which represents a comprehensive measure of changes in consumer credit defaults — dropped four basis points from May to settle at 0.82 percent that also set a new 10-year low. The composite rate has been below the 1 percent threshold since March 2015.
The composite rate’s high point arrived in May 2009 at 5.51 percent.
Helping the composite rate to sink to a new low as well was a decline in the bank card default rate for the first time in nine months, dipping 4 basis points on a sequential basis to 3.49 percent.
Analysts added the June first mortgage default rate also dropped 4 basis points from May to 0.60 percent.
Three of the five major cities S&P Dow Jones Indices and Experian tracks for this update saw their default rates decrease in the month of June.
New York had the largest decrease, down 13 basis points from May to 0.88 percent.
Miami reported in at 1.17 percent for June, dropping 12 basis points from the previous month.
Chicago came in at 0.91 percent, down 6 basis points from May.
Analysts noticed that Dallas and Los Angeles both remain unchanged from last month at 0.67 percent, and 0.66 percent, respectively.
Although the national bank card default rate experienced its first drop in nine months, analysts acknowledged it is still high.
When comparing the bank card default rate among the four census divisions, the default rate in the South is considerably higher than the other three census divisions.
The East South Central Census Region — comprised of Kentucky, Tennessee, Alabama and Mississippi — has the highest bank card default rate. As per Bureau of Labor Statistics, these states have some of the lowest median household income.
After all the data arrived, David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, offered his assessment of what’s happening.
“The economic expansion started in June 2009 and just passed its eighth anniversary. For most of those eight years, the consumers, politicians and business people expected bubbles, rampant inflation and budget crises. None of these fears were realized,” Blitzer said.
“Inflation is 1 to 2 percent, debt service levels are close to record lows. Disposable income is growing and supporting spending growth. Based on national averages, consumers are in good financial shape. Consumer credit defaults across mortgages, bank cards and auto loans are at levels similar to those before the financial crisis,” he continued.
“While nationally overall consumers’ financial condition is good, there are regional variations as shown by the charts. Regional patterns show that household income is one determinant of bank card default rates. The continuing decline in the unemployment rate and rising employment have not created any upward pressure on wages and salaries,” Blitzer added.
“Wage growth is about 2 percent to 3 percent annually, barely enough to stay ahead of inflation. Additional improvements in the economy, both nationally and regionally, are needed to push bank card default rates lower,” he went on to say.