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Consumer Credit Is Looking Up As Default Rates Remain Stable

Good news on the consumer credit front; default rates have stabilized signaling that the individual financial condition of the American consumer is improving. Over the past month, as the composite default rate and default rates on bank cards declined, mortgage defaults held steady through July according to the S&P/Experian Consumer Credit Default Indices.
 
During July, the 0.8% default rate on first lien mortgages was unchanged from the previous month. Also unchanged was the second mortgage default rate, which had a default rate of 0.55%. Over the same time span, the composite rate of 0.92% was down one basis point from June and the bank card default rate fell nine basis points to 2.79%. For auto loans, the default rate was 0.86%, a one basis point increase from the prior month.
 
(Source: S&P/Dow Jones)
 
In the month of July, four of the five major cities saw their default rates increase. Chicago experienced the greatest increase, reporting 1.15%; up 11 basis points from the prior month. Miami reported a default rate of 1.45% which is an increase of three basis points from its reported default rate in June.  New York and Los Angeles both recorded default rate increases of 1 basis point over the prior month, at 0.92% and 0.89% respectively. Dallas was the only city in July to report a lower default rate compared to the previous month, reporting a default rate of 0.64%, a decrease of four basis points from June.
 
When coupled with a higher outstanding balance on consumer credit accounts – indicating positive consumer sentiment – this stabilization of default rates reinforce the recent economic improvements seen in the unemployment rate and GDP growth.