Historically, consumer credit started 1987 at $653 billion. It is now at a $3,918 billion level. The quality of the credit is much better than historically and has remained stable at a combined default rate of 0.87%.
Currently, the index is portraying a consumer that has debt under control and manageable. Bank credit cards and first mortgage rates improved while auto loan default rate remained unchanged. The composite index is at 0.86 in June which is 0.03 points lower than last month, but 0.04 points higher than this time last year. Mortgage defaults are also slightly higher, year-over-year at 0.63. Auto loans have increased by 0.11 points from last year.
Consumer credit is as old as human history but, Adam Smith (1723-1790) mostly dismissed the idea because he never thought it would be popular. Benjamin Franklin observed in Poor Richard’s Almanack that staying out of debt was desirable but, not always practiced, “the People heard it and approved the Doctrine, and immediately practiced the contrary”. Most early economists never believed consumer credit would have a major impact on global economies.
Consumer credit took a short pause and is now showing renewed expansion without undue stress in servicing debt. Three of the credit default measures are at the same level as two years ago and the third is continuing to improve while credit expands. Credit quality is reasonable at these levels.