Tenth District Consumer Credit Report
Average consumer debt for the Tenth District, defined for this report as all outstanding debt other than first mortgages and presented as a four-quarter moving average, rose from $16,902 in the third quarter of 2016 to $17,169 in the first quarter of 2017—an increase of 1.6 percent (Chart 1, Panel A).1 Nationally, over the same period, consumer debt rose 1.3 percent to $17,993.
From its post-recession low in the first quarter of 2012, average consumer debt in the District has increased at an annual rate of 2.4 percent. National average consumer debt over the same period increased at an annual rate of 1.1 percent. Because District debt is growing faster than national debt, District and national average consumer debt are converging (they would converge in two years at current growth rates; see Chart 1, Panel B). Still, District debt is growing more slowly than its pre-recession rate of 4.9 percent annually (first quarter 2003 to first quarter 2008).
Chart 1: Outstanding Consumer Debt per Consumer and Revolving Debt per Consumer; Consumer Debt Trends
Notes: Excludes first mortgage. A first mortgage represents the primary note on a home and typically is not used to purchase consumer goods.
Source: Author's calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel / Equifax
Steady increases in employment and income likely underpin recent increases in consumer debt (Chart 2, shaded blue). In recent months, income has been growing faster than debt.2 A stable labor market and wage growth may make households more comfortable with debt and better able to manage debt.3 Moreover; higher incomes may loosen credit constraints. Research suggests income is the most significant determinant of a household’s unsecured borrowing limit.4 However, other, sometimes confounding factors can alter the relationship between income and the accumulation of debt.
During the recent recession (shaded gray in Chart 2), consumer debt increased as unemployment rose and personal income fell. This phenomenon may reflect the use of credit to smooth consumption for those losing jobs or income or may reflect the continuation of a secular trend upward in consumer debt that began years earlier. During the early recovery, households began to pare balance sheets, reducing borrowing and paying debt even as unemployment began to fall and personal income recovered (shaded green in Chart 2). If current economic conditions persist, rising incomes are expected to push consumer debt further upward, but at a moderate pace.
District average revolving debt, mostly credit cards and home equity lines of credit (HELOCs), was $4,951 in the first quarter of 2017.5 After falling consistently from the second quarter of 2009, average revolving debt in the District has rebounded by 4 percent over the last year (Chart 1). Despite these recent increases, District revolving debt remains well below its recession-era peak of $6,680 (down 26 percent).
Chart 2: Income, Unemployment, and Debt
Notes: Debt excludes first mortgage. A first mortgage represents the primary note on a home and typically is not used to purchase consumer goods.
Source: Author's calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel / Equifax; U.S. Bureau of Labor Statistics; U.S. Bureau of Economic Analysis; Haver Analytics
Research suggests that throughout one’s lifetime, revolving debt balances typically resemble an inverted U.6 In early adulthood, revolving debt tends to increase steadily until middle age, then declines as people age into peak earning years or rely more on retirement funds and less on debt. These demographic factors may shape patterns in revolving debt loads going forward. For example, as the population ages, we might expect less borrowing on revolving accounts, all else equal.
Average consumer debt varied significantly across District states, from $15,843 in Oklahoma to $19,212 in Colorado (Chart 3). Year-over-year increases ranged from 1.7 percent in Kansas to 6.9 percent in Nebraska. Many socioeconomic factors contribute to the variation in average debt across states and time and include demographics, cultural differences, trends in financial intermediation, public policy and general economic conditions.7
Chart 3: Outstanding Consumer Debt per Consumer
Notes: Excludes first mortgage. A first mortgage represents the primary note on the home and typically is not used to purchase consumer goods.
Source: Author's calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel/Equifax
In the first quarter of 2017, 3.6 percent of District consumers’ credit accounts were delinquent, up slightly from 3.55 percent in the previous quarter, but significantly lower than the U.S. rate of 4.2 percent (Chart 4). Except for student loans, delinquencies are calculated in this report as a share of open trade lines, or accounts. For example, the mortgage delinquency rate is the share of mortgages 30 days or more past due. The student loan delinquency rate represents the share of individuals with student debt who have a past due balance (see special topic section below).
The District’s lower overall credit delinquency rate is largely attributable to lower mortgage delinquency rates. The District mortgage delinquency rate was 4.3 percent in the first quarter, down from 4.8 percent in the first quarter of 2016 and significantly below the U.S. rate of 5.4 percent. The U.S. mortgage delinquency rate also declined over the past year, falling sharply from 6.2 percent. The relative stability of home prices and generally stronger economies in the Tenth District during the recession and early recovery explain much of the difference in mortgage delinquency rates.
The District delinquency rate on consumer finance installment loans fell from 12.8 percent in the first quarter of 2016 to 12.5 percent in the first quarter of 2017, but remained well above the U.S. rate of 8.6 percent. Across District states, consumer finance delinquency rates differed widely, from 3.3 percent in Nebraska to 21 percent in Oklahoma. Factors explaining the wide dispersion of delinquency rates for consumer finance loans include regulation and other consumer laws and policies that vary by state. These factors were discussed in more detail in the December 2015 issue of this report.8 Auto delinquencies (expressed as share of accounts) continued to increase in the first quarter, rising to 8.4 percent.9 Delinquencies on retail loans (mostly credit cards) reached 4 percent, up from 3.6 percent one year ago.
Chart 4: Consumer Credit Delinquency Rates and Bankruptcy Filings
Notes: At least 30 days past due. Number of households was updated for this issue using the 2015 American Community Survey. Data in this chart are therefore not directly comparable to similar data in previous issues (the denominator is larger). * "Any Account" may include accounts not otherwise reported in the chart. †Student loan delinquency includes all student loan debt, including those in deferment and forbearance. Student loan data reported here were calculated using a different Equifax sample than other statistics in this report. ‡Mortgage delinquency is the current rate and not a moving average and includes both first and secondary liens.
Source: Author's calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel / Equifax; the Administrative Office of the U.S. Courts; and Lender Processing Services, Inc.
In the first quarter of 2017, the student loan delinquency rate for the Tenth District was 16.9 percent, down 0.1 percentage point from the fourth quarter of 2016. This number represents the share of individuals with student loan debt who had past-due balances in the quarter. The corresponding U.S. number was 16.1 percent.10
Student loan delinquency rates are often understated when loans in deferment or forbearance are included in the calculation.11 Deferment allows borrowers to stop making loan payments if they are enrolled in school at least half-time; currently serving on active military duty (or performing other qualifying military service); in Peace Corps service; engaged in a full-time rehabilitation training program; or in some cases of economic hardship. Forbearance allows those who do not qualify for a deferment to stop making student loan payments, temporarily make smaller payments or extend the time for making payments. Common reasons for forbearance are illness, financial hardship or serving in a medical or dental internship or residency. Deferred and forborne debt enters the denominator of the delinquency calculation as debt that is owed, but these loans are not considered past due and therefore do not add to the numerator. Thus, deferred and forborne debt deflates the delinquency rate.
The CCP/Equifax data do not indicate if a loan is in deferment or forbearance. Instead, to calculate a delinquency rate only for student loan debt in repayment, debt is considered to be deferred or forborne, and therefore taken out of the denominator, if the debt is not past due but has a non-declining balance. When eliminating loans not in repayment, the delinquency rate for the District jumps from 16.9 percent to 30.7 percent (Chart 5). The delinquency rate is just under 40 percent in New Mexico and Oklahoma. Each state has a struggling economy, although Oklahoma’s student loan delinquency rate has been relatively very high for several years.12 Delinquency in repayment mostly is proportional to the delinquency rates for all student debt.
Chart 5: Share of Student Loans Past Due, First Quarter, 2017
Notes: These data represent the share of individuals with student loan debt who have any past due balance. Some repayment relief programs could result in a zero payment and capitalizing interest (see Wenhua Di and Kelly D. Edmiston, 2017, "Student Loan Relief Programs: Implications for Borrowers and the Federal Government," Annals of the American Academy of Political and Social Science, May, 224-248). This situation is relatively rare, but to the extent it arises, the data in this chart would (modestly) overstate the delinquency rate in repayment; specifically, the denominator in the calculation would be artificially low.
Source: Author's calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel/Equifax
1 Statistics in this report, unless indicated otherwise, are derived from data in the Federal Reserve Bank of New York Consumer Credit Panel/Equifax. The data consist of a 5 percent blind sample of Equifax credit reports. Average consumer debt is calculated by dividing the aggregate consumer debt of those in the credit report sample by the number of individuals in the sample. Credit and debt statistics can be calculated many ways, and thus these statistics may not be comparable to similar statistics published elsewhere, including by other Federal Reserve Banks. The Tenth District includes Colorado, Kansas, western Missouri, Nebraska, northern New Mexico, Oklahoma and Wyoming. In many cases, this report uses data from all of Missouri and New Mexico, in which case the label for the region is “District States.”
2 Annual income growth was 3.5 percent over the past year (first quarter 2016 to first quarter 2017 and 3.1 percent in the previous year (U.S. Bureau of Economic Analysis, Table 2.1, “Personal Income and Its Disposition,” April 28).
3 See Jonathan Cook, 2001, “The Demand for Household Debt in the USA: Evidence from the 1995 Survey of Consumer Finances,” Applied Financial Economics, vol. 11, no. 1, pp. 83-91.
4 Kyoung Jin Choi, Hyeng Koo, Byung Hwa Lim and Jane Yoo, 2015, “The Determinants of Unsecured Credit Constraint,” Sept. 8. Available at http://dx.doi.org/10.2139/ssrn.2657352.
5 Nationally, almost all consumers (with credit reports) have credit cards, while about 6 percent have open HELOCs.
6 Scott L. Fulford and Scott Schuh, 2015, “Consumer Revolving Credit and Debt Over the Life-Cycle and Business Cycle,” September. Available at https://www.fdic.gov/news/conferences/consumersymposium/2015/presentations/fulford.pdf.
7 See, for example, Basak Kus, 2015, “Sociology of Debt: States, Credit Markets, and Indebted Citizens,” Sociology Compass, vol. 9, no. 3, pp. 212-223; Thomas Durkin et al., 2015, Consumer Credit and the American Economy (Oxford University Press USA).
9 Lower-valued auto loans are more likely to be delinquent, all else equal. Thus, a computation of the share of aggregate auto debt that is past due would produce a much smaller number.
10 An individual could be delinquent on only one of several accounts, although most borrowers make a single payment that covers multiple loans (typically a new loan is issued for each semester in which a student borrows). Missed payments often appear in a credit report as delinquencies on multiple loans. For example, if the borrower is making a single payment to a servicer and the payment covers debt service on 10 student loans, one missed payment could result in 10 past-due accounts on a credit report.
11 Student loan delinquency rates can be calculated in other ways, which can lead to significantly different values. For example, the Federal Reserve Bank of New York typically reports the share of aggregate student loan balances that is 90 days or more past due. For the fourth quarter of 2016 (latest available), this rate was 11.2 percent for the nation. Another option is to calculate the share of accounts that is overdue.
12 See, for example, previous editions of this report, especially fourth quarter 2011 and first quarter 2013. See also Wenhua Di and Kelly D. Edmiston, 2015, “State Variation in Student Loan Debt and Performance,” Suffolk Law Review, 48(3), 661-688. Available at http://suffolklawreview.org/wp-content/uploads/2016/02/Di_Article_48-3.pdf.