A widely followed indicator of consumer loan delinquencies has dropped to its lowest level in nine years, but the parallel trend in credit cards may be leveling off.
The American Bankers Association's composite index of consumer credit showed 1.95% of loans were 30 days or more past due at the end of September.
The seasonally adjusted statistic, which had not fallen below 2% since 1984, improved from 2.03% in August, 2.06% in June, and 2.46% in September 1992.
The composite figure has fallen for consecutive quarters. It is derived from a survey of 800 ABA members in eight types of closed-end credit, including auto, personal, and home equity loans.
Well Below the Peak
Credit cards, classified as open-end credit, are not factored into the composite. Their third-quarter delinquency rate was 2.66%, virtually unchanged from July through September and slightly above the 2.63% of June.
Despite the recent leveling, card delinquencies are still well below the first quarter 1991 peak of 3.34%. But they have not approached the lows of 2.13% in the second quarter of 1984 or 2.14 in the third quarter of 1988.
Moody's Investors Service Inc. recently said the delinquency rate on credit card receivables in securitized pools, measured as a percentage of balances, reached a three-year low of 5.24% in August. The decline from 5.81% in August 1992 was the steepest year-to-year drop in the history of that index.
Sign of Healthier Economy
Edward Bankole, the Moody's analyst responsible for its credit card index, said an inference could be made about the entire credit card industry.
"It seems to be consistent with improving economic conditions," Mr. Bankole said. "It means people are more able to make their payments on time."
Mr. Bankole said there may be limits to further improvement in card delinquencies and chargeoffs because of heightened competition and consumers' willingness to file for bankruptcy protection.
The unusually low level of the ABA's composite index is typical of the end of a recession and precedes additional spending and economic growth. "It's indicative of an underlying improvement in the economy," said ABA chief economist James Chessen.
Installment Loans Up
Total consumer installment credit increased at a seasonally adjusted annual rate of 9.6% in September, to $768.6 billion, and 12.7% in October, to $776.1 billion, the ABA said, citing Federal Reserve Board data.
Analysts said auto loans were a key factor, rising at an annualized 8.4% in September and 17.5% in October, along with revolving credit. The latter, including outstanding balances on bank cards and retailer cards, jumped 13.1% in September and 13.8% in October.
Automobile and revolving loans each account for about 35% of total consumer installment debt.
Mr. Chessen cautioned that increases in consumer spending could lead to an uptick in delinquencies.
"There's always the worry, particularly at this time of year," he said. "The danger is when next Christman comes around, there will be a lot of overhanging debt."
Better Off Financially
"Will consumers borrow so heavily that they get overextended?" said Allen Sinai, chief economist of Economic Advisers Inc., an affiliate of Lehman Brothers. "Not for a long time, and the reason is the economy is stronger, healthier, more jobs are being created, and the financial position of consumers is much improved."
Auto and personal loans account for more than half of the ABA's composite closed-end delinquency figure. The rate on auto loans made directly by banks dropped to 1.72% in September from 1.84% in June, while the rate on indirect financing through auto dealers fell to 1.82% from 1.97%.
The delinquency rate on personal loans dipped 4 basis points during the third quarter, to 2.55%.
Home Equity Loans
The lowest delinquency rate was on open-end home equity lines of credit, at 0.70% in September, through it was up from 0.66% in June. On closed-end home equity loans, the rate rose to 1.68% from 1.57% in the second quarter, but the latest figure is not seasonally adjusted.
The percentage of delinquent accounts were lowest in Florida, Arizona, and Wisconsin.
