Consumers are managing debt and default rates are favorable for economic expansion.
This is an update of our consumer credit report from earlier this year. It can be found at – (https://investment-strategy.info/service/economics/usa-updates/consumer-credit or on the Investment Strategy Network site at Menu > Client Service > Economics > Consumer Credit)
Our focus in this report is on consumer credit defaults. Measuring defaults over three major areas: Mortgages, bank cards and auto loans is used to create a composite by S&P/Experian and available on the web site, www.spindices.com. We have found the index useful in determining the financial strength of the consumer which is one of the most important factors in the continuing strength of the American economy.
Currently, the index is portraying a consumer that has debt under control and manageable, but slightly moving sideways to upward. The largest increase is in bank card debt. The composite index is at 0.89 in May which is 0.03 points lower than last month, but 0.03 points higher than this time last year. Mortgage defaults are also lower, year-over-year at 0.66. Auto loans have increased by 0.08 points from last year and 0.17 points from 2 years ago, but also dropped from last month by 0.06 points to 0.93.
Bank card default rates stopped increasing on a month-to-month basis dropping slightly by 0.02 points, but on a year-over-year basis were up by 0.29 points reaching 3.84 in May. The increase is slower than the rate of economic growth so this is not an alarming event, and it is favorable that both mortgage and auto defaults are flat, or improving, given the improving economy.
Overall, the credit default rates are indicating the consumer is managing debt and hopefully will benefit from increased income levels.
The dangers of consumer credit overuse or default still brings about fears of negative market implications because some form of credit has been associated with just about every market correction in history. Even though investors fear consumer credit problems, it is not a problem for all stocks. Before we take a look at the stocks that consumer credit impacts the most, we believe current credit levels by consumers appears to be well managed. Credit default is at the same level and the economy is improving. This is more favorable than when consumer defaults rise while the economy struggles.
A complete list of stocks that have a Very Strong relationship with consumer credit can be found at the menu listing mentioned above.