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U.S. Consumer Default Rates Rise: Is the ‘Trump Bump’ Ending?

Despite historically low unemployment rates, consumer confidence at a 17-year high, and a booming stock market, Americans were late paying their bills in October. According to the S&P/Experian Consumer Credit Default index, the default rates for autos, bank cards, and mortgages all rose last month, the first time that’s occurred since January.

Source: S&P/Experian Consumer Credit Default Indices

The Consumer Credit Default Indices represent a comprehensive measure of changes in consumer credit defaults; in other words, whether or not people are late on their loan payments.

The October results—which also featured the first monthly increase in the national bank card default rate since May—may be the result of dislocations from the hurricanes in Texas and Florida, says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

“The data does not suggest any unusual financial stress facing consumers,” he says. “The one concerning item, which might explain the default numbers, is recent softness in real disposable personal income,” which is the money households have left over after paying taxes, adjusted for inflation. (After rising sharply to start the year, the St. Louis Fed’s measure of real disposable personal income flatlined from May thru September before turning higher in October.)

One additional concern, ironically, is a sense the economy might be reaching ‘as good as it gets’ territory.

“Historically, when everyone believes the economy is perfect, we should be wary,” Blitzer says.

And while ‘everyone’ might not think it’s perfect, the economy is doing well by most macroeconomic measures. Blitzer cites 3% third-quarter GDP growth, stable inflation, low unemployment and retail sales growing at a 4% annual rate.

“Looking more closely at consumers, monthly measures of consumer sentiment and expectations remain strong,” he says. “People are spending: auto sales, retail numbers and discretionary items such as restaurants are all gaining.”

Indeed, early returns from retailers such as Target suggest the holiday shopping season is off to a robust start.

Looking ahead, Blitzer expects the economy to grow 2% to 2.5% in 2018, with interest rates and inflation both positioned to increase a bit. “A stock market correction after a long rally looms at some point, especially if the success rate at passing legislation in Washington continues for 2018,” he says.

Something to keep in mind as President Trump’s tax agenda comes up for a vote this week.

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