Delinquency rates tick upward: Blame the Government

pastdue.jpgConsumer delinquencies on loans moved higher in the second quarter of this year, as high unemployment continues to hurt the loan portfolios of banks, according to the latest analysis of the American Bankers Association.

As if you hadn’t heard the refrain enough lately: the country needs more jobs.

“The most important factor in whether or not someone can repay their debt is whether or not they have a job,’’ says ABA Chief Economist James Chessen, in the understatement of the year.

It hasn’t helped matters, as Chessen points out, that the national unemployment rate ticked upward from 9 percent to 9.2 percent during the second quarter. (The latest unemployment rate for September, released by the U.S. Department of Labor today, shows a 9.1 percent unemployment rate.)

The ABA survey of 300 commercial banks about their auto, personal, home equity and credit card portfolios found that nine out of 11 categories of loans had higher delinquency rates in the second quarter than the quarter before.  The exception was a slight improvement in credit card portfolios and mobile home loans.

The overall, seasonally adjusted, composite index rose 17 basis points to 2.88 percent from 2.71 percent in the first quarter. The ABA defines its delinquency rate as the percent of loans that are 30 days or more past due.

Interestingly enough, the private sector has been adding jobs quarter-to-quarter since 2010. It’s the public sector, pressured by low tax revenues, that has been shedding jobs this year and through much of last year. (The latest figures for September show this trend continuing.)

In an ABA chart that uses its own loan survey data and data from the Bureau of Labor Statistics, the delinquency rate starts to drop as jobs pick up in the private sector. But you can almost see the delinquency rate on consumer loans begin to climb slightly after a series of layoffs in the public sector.


“(Governments) spent a lot (of money) and thought revenue coming from property taxes or income and sales taxes were going to continue at that level,’’ Chessen says. “But when property taxes started to fall relating to home prices and when income fell, and sales were off, their revenue fell quickly but their expenses were locked in. To get expenses back in line has meant layoffs.” 

Unlike the federal government, most states must balance their operating budgets and not spend more than they collect in taxes, so the layoffs seem almost inevitable.

It appears that this time around, the public sector is a real drag on the economy, keeping unemployment high even as the private sector tries to get its footing.