Delinquencies in closed-end loans fell slightly in the second quarter, driven by a drop in home equity loan delinquencies, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin.
The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 3 basis points to 1.35% of all accounts – a record low. This also marked the third year that delinquency rates were below the 15-year average of 2.21%. The ABA report defines a delinquency as a late payment that is 30 days or more overdue. This is good news but the personal financial health of consumers in the USA is still in need of significantly improvements to their balance sheets. Debt levels are still too high. Savings levels are still far to low.
Home equity loan delinquencies fell 4 basis points to 2.70% of all accounts, which helped drive the composite ratio down. Other home related delinquencies increased slightly, with home equity line delinquencies rising 6 basis points to 1.21% of all accounts and property improvement loan delinquencies rising 2 basis points to 0.91% of all accounts. Home equity loan delinquencies dipped further below their 15-year average of 2.85%, while home equity line delinquencies remained just above their 15-year average of 1.15 percent.
Bank card delinquencies edged up 1 basis point to 2.48% of all accounts in the second quarter. They remain significantly below their 15-year average of 3.70 percent.
The second quarter 2016 composite ratio is made up of the following eight closed-end loans. All figures are seasonally adjusted based upon the number of accounts.
Home equity loan delinquencies fell from 2.74% to 2.70%.
Mobile home delinquencies fell from 3.41% to 3.17%.
Personal loan delinquencies fell from 1.44% to 1.43%.
Direct auto loan delinquencies rose from 0.81% to 0.82%.
Indirect auto loan delinquencies rose from 1.45% to 1.56%.
Marine loan delinquencies rose from 1.03% to 1.23%.
Property improvement loan delinquencies rose from 0.89% to 0.91%.
RV loan delinquencies rose from 0.92% to 0.96%.
Bank card delinquencies rose from 2.47% to 2.48%.
Home equity lines of credit delinquencies rose from 1.15% to 1.21%.
Non-card revolving loan delinquencies rose from 1.57% to 1.65%.
Related: Debt Collection Increasing Given Large Personal Debt Levels (2014) – Consumer and Real Estate Loan Delinquency Rates from 2001 to 2011 in the USA – Good News: Credit Card Delinquencies at 17 Year Low (2011) – Real Estate and Consumer Loan Delinquency Rates 1998-2009 – The USA Economy Needs to Reduce Personal and Government Debt (2009)
Even if some lobbyists and their friends in Washington DC try to distract from the long term failure of the USA health care system the data continues to pour in about how bad it is.
None of these rankings are perfect and neither is this one. But it is clear beyond any doubt that the USA healthcare system is extremely costly for no better health results than other rich countries (and even more expensive with again no better results than most poor countries). It is a huge drain on the economy that we continue to allow lobbyists and special interests to take advantage of the rest of us via the Democrats and Republican parties actions over the last few decades.
We have to improve. The costs imposed on everyone to support those benefiting from this decades old transfer of economic wealth to health care special interests should no longer be accepted.
The top 5 countries are: Hong Kong, Singapore, Spain, South Korea and Japan. The first four have costs about 25% of the USA. Japan costs about 40% of the USA per person cost.
Mylan’s despicable actions with Epi-pen and the direct participation of both political parties in increasing the costs foisted on the health care system by Mylan is just one in hundreds of the individual actions that continue to saddle the rest of USA economy with huge costs.
Related: Out of Pocket “Maximum”, Understanding USA Health Care Costs – Decades Later The USA Health Care System is Still a Deadly Disease for Our Economy – 2015 Health Care Price Report, Costs in the USA and Elsewhere – USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDP – USA Spends $7,960 Compared to Around $3,800 for Other Rich Countries on Health Care with No Better Health Results (2009 data)
The International Federation of Health Plans has published the 2015 Comparative Price Report, Variation in Medical and Hospital Prices by Country. Once again this illustrates the excessive cost of health care in the USA. See related posts for some of our previous posts on this topic.
The damage to the USA economy due to inflated health care costs is huge. A significant portion of the excessive costs are due to policies the government enacts (which only make sense if you believe the cash given to politicians by those seeking to retain the excessive costs structure in the USA the last few decades buy the votes of the political parties and the individual politicians).
In 2015, Humira (a drug from Abbvie to treat rheumatoid arthritis that is either the highest grossing drug in the world, or close to it) costs $2,669 on average in the USA; $822 in Switzerland; $1,362 in the United Kingdom. This is the cost of a 28 day supply.
All the prices shown here are for the prices reported are the average allowed costs, which include both member cost sharing and health plan payment. So it only includes costs for those covered by health plans (it doesn’t include even much larger price tags given those without insurance in the USA).
Harvoni (a drug from Gilead to treat hepatitis C is also near the top of drugs with the largest revenue worldwide). This is also a drug that has been used as a lightning rod for the whole area of overpriced drugs. One interesting thing is this is actually one that is not nearly as inflated in the USA over other countries nearly as much as most are. Again, for a 28 day supply the costs are $16,861 in Switzerland; $22,554 in the United Kingdom and $32,114 in the USA. Obviously quite a lot but “only” double the cost in the USA instead of over triple for Humira (from Switzerland to the USA).
Tecfidera is prescribed to treat relapsing multiple sclerosis. The cost for a 30 day supply vary from $663 in the United Kingdom to $5,089 in the USA ($1,855 Switzerland).
There are actually some drugs that are more expensive outside the USA (though it is rare). OxyContin is prescribed to treat severe ongoing pain and is also abused a great deal. The prices vary from $95 in Switzerland to $590 in the United Kingdom ($265 in United States).
The report also includes the cost of medical procedures. For both the drugs and the procedures they include not only average but measures to show how variable the pricing is. As you would expect (if you pay attention to the massive pricing variation in the USA system) the variation in the cost of medical procedures is wide. For an appendectomy in the USA the 25th percentile of cost was $9,322 and for the 95th was $33,250; the average USA cost was $15,930. The average cost in Switzerland was $6,040 and in the United Kingdom was $8,009.
As has been obvious for decades the USA needs to stop allowing those benefiting from the massively large excessive health care costs in the USA from buying the Democrats and Republicans support to keep prices so high. But there has been very little good movement on this front in decades.
Related: USA Heath Care System Needs Reform – USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDP – Decades Later The USA Health Care System is Still a Deadly Disease for Our Economy – USA Spends $7,960 per person Compared to Around $3,800 for Other Rich Countries on Health Care with No Better Health Results (2009) – Drug Prices in the USA (2005)
After a slowing of additional capacity added in 2013, both 2014 and 2015 saw a bit of a rebound in additions to global wind energy capacity. In 2013 capacity increased only 13% while in both 2014 and 2015 it increased 17%. Still 17% is less than any year in the last 10, except 2013.
At the end of 2013 China had 29% of global capacity (after being responsible for adding 62% of all the capacity added in 2013). In 2005 China had 2% of global wind energy capacity.
At the end of 2015 China accounted for 34% of global capacity, the only country in the top 8 increasing their share of global capacity. The USA now has 17% of capacity. Germany has 10%.
Europe moved first in adding large scale wind energy capacity but has added capacity very slowly in the last 5 years. Germany had 31% of global capacity in 2005. Spain had 17% in 2005 and now has just 5% (during that time Spain has more than doubled their wind energy capacity).
The 6 countries shown on the chart account for 76% of total wind energy capacity globally. From 2005 to 2015 those 8 countries have accounted for between 74 and 77% of total capacity – which is amazingly consistent.
Wind power now accounts for approximately 4 to 5% of total electricity used.
Related: Chart of Global Wind Energy Capacity by Country 2005 to 2013 – Solar Energy Capacity by Country (2005 to 2013) – Nuclear Power Generation by Country from 1985-2010 – Chart of Largest Petroleum Consuming Countries from 1980 to 2010
The report, The Dwindling Taxable Share Of U.S. Corporate Stock, from the Brookings Institution Tax Policy Center includes some amazing data.
In 1965 foreign ownership of USA stocks totaled about 2%, in 1990 it had risen to 10% and by 2015 to 26%. That the foreign ownership is so high surprised me. Holdings in retirement accounts (defined benefit accounts, IRAs etc.) was under 10% in 1965, rose to over 30% in 1990 and to about 40% in 2015. The holdings in retirement accounts doesn’t really surprise me.
The combination of these factors (and a few others) has decreased the holding of USA stocks that are taxable in the USA from 84% in 1965 to 24% in 2015. From the report
As with much economic data it isn’t an easy matter to determine what values to use in order to get figures such as “foreign ownership.” Still this is very interesting data, and as the report suggests further research in this area would be useful.
Related: There is No Such Thing as “True Unemployment Rate” – The 20 Most Valuable Companies in the World – February 2016 (top 10 all based in the USA) – Why China’s Economic Data is Questionable – Data provides an imperfect proxy for reality (we often forget the proxy nature of data)
Credit scores are far from a great measure of weather a person is a great credit risk for a specific loan, in my opinion. However, they are very widely used and therefor, very important. They also are somewhat useful. And lenders don’t base judgement solely on credit scores, they consider many other factors, if they have any sense at all.
Credit scores range from 300 to 850. They are calculated by various credit reporting organizations, including FICO. They factor in payment history, percent of outstanding credit available that is used, credit report checks, length of outstanding credit accounts, etc..
Metlife report on consumers and credit scores provides some interesting data.
|Credit score range||Default rate*|
* Default rate in this case means, 90 days past due. MetLife got this data from the Consumer Financial Health Study dataset**.
Peer to peer lending platform, Lending Club, limits loans to those with a minimum credit score of 660 (remember there are multiple organizations that provide credit scores, this minimum is based on Lending Club’s score). In general I see scores above 700 in A and B loans, scores from 650-700 in C and D loans. Remember the credit score is not the only factor setting the rate (you will see scores above 700 in the C loans sometimes, etc.). Credit scores provide some insight but are just 1 factor in approving loans or setting rates (an important one but not a completely dominant one).
About 38% of people have credit scores from 750-850. Another 37% from 600-749 and about 25% from 350-599.
Vantage Score decided to make their score range go up to 1000, not the standard 850. Maybe a 750 score for them is comparable to 680? They say super-prime is 900+ (750-850 on more common scale), prime is 701-900 (680-739), near-prime 641-700 (620-679), subprime 501-640 (550-619). Anyway that chart shows the changing default rates from 2003 to 2010 by type of loan.
This Federal Reserve report on meeting between Federal Reserve Board staff and Fair Isaac Corporation (FICO) 20 June 2013 has some interesting material.
For guidance, the following table generally matches a borrower’s odds-of-default with the corresponding FICO 8 score (calculated on performance from Oct 2008 – Oct 2010). Of course, the range of scores and odds-of-default [the data is related to mortgages] will vary with each model as creditors develop and validate their own credit scoring models.
Odds-of Default FICO 8 Score percent of population** 5:1 610 9% 10:1 645 9% 20:1 685 6% 30:1 705 6% 40:1 720 6% 50:1 735 9% 100:1 770 30%
As you can see at a 610 level, 20 loans out of 100 defaulted. At 685 just 5 in 100 defaulted and at 770 just 1 in 100 did.
** I had to adjust this, because the report didn’t report it in this form, so it a very approximate measure (I made estimates for something like scores from 735 to 769 etc.). Again this is data from the Oct 2008 – Oct 2010 period. The rest of the population (about 25%) would have scores below 610.
This page references a Fed report (that I can’t find) that found the following default rates on new loans for the two years after origination, 2000-2002:
|Credit score range||Default rate*|
The Consumer Financial Health Study respondents were asked to self-assess their credit quality and for permission to pull their actual credit scores.8 Forty-five percent of survey participants granted permission, yielding an “opt-in” sample size of 3,215. We appended two objective measures of creditworthiness to the dataset: Experian provided VantageScore 3.0 credit scores, and LexisNexis® Risk Solutions provided RiskView™ scores. VantageScore is a generic credit scoring model that was created by the three major credit bureaus (Equifax®, Experian and TransUnion®) and, in addition to
tradeline data, includes rent, utility and cell phone payment data when it is available in consumer credit files.
Peer to peer lending has grown dramatically the last few years in the USA. The largest platforms are Lending Club (you get a $25 bonus if you sign up with this link – I don’t think I get anything?) and Prosper. I finally tried out Lending Club starting about 6 months ago. The idea is very simple, you buy fractional portions of personal loans. The loans are largely to consolidate debts and also for things such as a home improvement, major purchase, health care, etc.).
With each loan you may lend as little as $25. Lending Club (and Prosper) deal with all the underwriting, collecting payments etc.. Lending Club takes 1% of payments as a fee charged to the lenders (they also take fees from the borrowers).
Borrowers can make prepayments without penalty. Lending Club waives the 1% fee on prepayments made in the first year. This may seem a minor point, and it is really, but a bit less minor than I would have guessed. I have had 2% of loans prepaid with only an average of 3 months holding time so far – much higher than I would have guessed.
On each loan you receive the payments (less a 1% fee to Lending Club) as they are made each month. Those payments include principle and interest.
Lending Club provides you a calculated interest rate based on your actual portfolio. This is nice but it is a bit overstated in that they calculate the rate based only on invested funds. So funds that are not allocated to a loan (while they earn no interest) are not factored in to your return (though they actually reduce your return). And even once funds are allocated the actual loan can take quite some time to be issued. Some are issued within a day but also I have had many take weeks to issue (and some will fail to issue after weeks of sitting idle). I wouldn’t be surprised if Lending Club doesn’t start considering funds invested until the loan is issued (which again would inflate your reported return compared to a real return), but I am not sure how Lending Club factors it in.
Total nonfarm payroll employment increased by 271,000 in October, and the unemployment rate was essentially unchanged at 5.0%. Over the prior 12 months, employment growth had averaged 230,000 per month – which is quite an excellent result. We are still recovering from the job losses suffered during the great recession but even considering that the results are excellent.
As my recent post noted, adding 50,000 jobs a month is the new 150,000 in the USA due to demographic changes. That means job gains in the last year have added about 180,000 jobs per month above the 50,000 needed to accommodate growth due to demographic changes (a larger population of adults.
The change in total nonfarm payroll employment for August was revised from +136,000 to +153,000, and the change for September was revised from +142,000 to +137,000. With these revisions, employment gains in August and September combined were 12,000 more than previously reported.
Household Survey Data
Both the unemployment rate (5.0%) and the number of unemployed persons (7.9 million) were essentially unchanged in October. Over the past 12 months, the unemployment rate dropped by 70 basis (from 5.7%) and 1.1 million fewer people are listed as unemployed.
Among the major worker groups, the unemployment rates for adult men (4.7%), adult women (4.5%), teenagers (15.9%), whites (4.4%), blacks (9.2%), Asians (3.5%), and Hispanics (6.3%) showed little or no change in October.
The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 2.1 million in October and has shown little change since June. These individuals accounted for 26.8% of the unemployed in October.
This chart shows that the percentage of millionaire families by highest education level is dramatically different by education level. The data is looking at USA family income for household headed by a person over 40. For high school dropouts, fewer than 1% are millionaires; all families it is about 5%; high school graduates about 6%; 4 year college degree about 22% and graduate or professional degree about 38%.
While the costs of higher education in the USA have become crazy the evidence still suggests education is highly correlated to income. Numerous studies still show that the investment in education pays a high return. Of course, simple correlation isn’t sufficient to make that judgement but in other studies they have attempted to use more accurate measures of the value of education to life long earnings.
Related: The Time to Payback the Investment in a College Education in the USA Today is Nearly as Low as Ever, Surprisingly – Looking at the Value of Different College Degrees – Engineering Graduates Earned a Return on Their Investment In Education of 21%
The blog post with the chart, Why Wealth Inequality Is Way More Complicated Than Just Rich and Poor has other very interesting data. Go read the full post.
Average isn’t a very good measure for economic wealth data, is is skewed horribly by the extremely wealthy, median isn’t a perfect measure but it is much better. The post includes a chart of average wealth by age which is interesting though I think the $ amounts are largely worthless (due to average being so pointless). The interesting point is there is a pretty straight line climb to a maximum at 62 and then a decline that is about as rapid as the climb in wealth.
That decline is slow for a bit, dropping, but slowly until about 70 when it drops fairly quickly. It isn’t an amazing result but still interesting. It would be nice to see this with median levels and then averaged over a 20 year period. The chart they show tells the results for some point in time (it isn’t indicated) but doesn’t give you an idea if this is a consistent result over time or something special about the measurement at the time.
They also do have a chart showing absolute wealth data as median and average to show how distorted an average is. For example, median wealth for whites 55-64 and above 65 is about $280,000 and the average for both is about $1,000,000.
Related: Highest Paying Fields at Mid Career in USA: Engineering, Science and Math – Wealthiest 1% Continue Dramatic Gains Compared to Everyone Else – Correlation is Not Causation: “Fat is Catching” Theory Exposed
European government debt has been sold at negative interest rates recently. The United States Treasury has now come as close to that as possible with 0% 3 month T-bills in the latest auction.
The incredible policies that have created such loose credit has the world so flooded with money searching for somewhere to go that 0% is seen as attractive. This excess cash is dangerous. It is a condition that makes bubbles inflate.
Low interest rates are good for businesses seeking capital to invest. These super low rates for so long are almost certainly creating much more debt for no good purpose. And likely even very bad purposes since cash is so cheap.
One thing I didn’t realize until last month was that while the USA Federal Reserve stopped pouring additional capital into the markets by buying billions of dollars in government every month they are not taking the interest and maturing securities and reducing the massive balance sheet they have. They are actually reinvesting the interest (so in fact increasing the debt load they carry) and buying more debt anytime debt instruments they hold come due.
The Fed should stop buying even more debt than they already hold. They should not reinvest income they receive. They should reduce their balance sheet by at least $1,500,000,000,000 before they consider buying new debt.
Unless the failure to address too-big-to-fail actions (and systems that allow such action) results in another great depression threat. And if that happens again they should not take action until people responsible are sitting in jail without the possibly of bail. The last bailout just resulted in transferring billions of dollars from retires and other savers to the pockets of those creating the crisis. Doing that again when we knew that was fairly likely without changing the practices of the too-big-to-fail banks. But I would guess we will just bail them out while they sit in one of the many castles their actions at the too-big-to-fail banks bought them and big showered with more cash in the bailout from the next crisis.
How to invest in these difficult times is not an easy question to answer. I would put more money in stocks for yield (real estate investment trusts, drug companies, dividend aristocrats), I would also keep cash even if it yields 0% and actually a new category for me – peer to peer lending (which I will write about soon). Recently many dividend stocks have been sold off quite a bit (and then on top of that drug stocks sold off) so they are a much better buy today than 4 months ago. Still nothing is easy in what I see as a market with much more risk than normal.
I am almost never a fan of long term debt. I would avoid it nearly completely today (if not completely). For people that are retired and living off their dividends and interest I may have some long term debt but I would have much more in cash and short term assets (even with the very low yields). Peer to peer lending has risks but given what the fed has done to savers I would take that risk to get the larger yields. The main risk I worry about is the underwriting risk – the economic risks are fairly well known, but it is very hard to tell if the lender starts doing a poor job of underwriting.
Related: The Fed Should Raise the Fed Funds Rate – Too-Big-to-Fail Bank Created Great Recession Cost Average USA Households $50,000 to $120,000 – Buffett Calls on Bank CEOs and Boards to be Held Responsible – Historical Stock Returns