April 25, 2014

Continued increases in consumer confidence could mean more robust loan origination

Various measures of consumer confidence have shown strength lately, and the continued improvement in this sentiment could fuel more robust loan origination by increasing the demand for credit.

In addition, as people become more willing to take on debt, they could push the rate of defaults higher. This development could affect loan sales by increasing the supply of credit that might reach either delinquent or even charge-off status.

Key measure of confidence rises repeatedly
The Thomson Reuters/University of Michigan final index of sentiment climbed twice in April, rising to 82.6 earlier in the month from March's reading of 80, according to Bloomberg. This result surpassed the prediction of 81 provided by economists participating in a poll conducted by the media outlet.

Later in April, the key index rose to 84.1. This figure beat the forecasts of market experts taking part in a Reuters poll, who estimated the measure would increase to 83.0. The barometer of economic conditions increased to 98.7, which was its highest reading since July 2007.

Richard Curtin, University of Michigan professor and director of the surveys, spoke on some of the factors that could limit the strength of consumers. He stated that the consumer's outlook on business conditions has a huge impact on what they spend.

"While near-term expectations have improved substantially, longer-term expectations for personal finances as well as the overall economy have remained unchanged from a year ago," he said in the statement. "Hopefully, as the pace of economic growth springs ahead in the coming months, the main beneficiary will be an improvement in long-term economic expectations for personal finances as well as the overall economy."

Expert notes continued improvement
Brett Ryan, an economist at Deutsche Bank Securities Inc. in New York, also noted the continued improvements in confidence, according to Bloomberg.

"Consumer sentiment continues to chug higher," Ryan told the news source. "It means people are getting jobs or incomes are increasing or they feel a little bit more stable about their situation."

In addition to the growing strength of the labor market, rising home values and high prices for equities are providing tailwinds to everyday Americans, according to the news source. If the jobs situation keeps getting better, that could place upward pressure on wages. Putting more money into the pockets of consumers might bolster their optimism and expenditures.

Many believe expansion has picked up
Several experts noted the economy's recent acceleration, including Jay Morelock, an economist at FTN Financial in New York, Bloomberg reported. He emphasized that the recovery encountered some challenges in the first three months of the year, but many believe the situation will be far stronger during the second quarter.

Consumers are becoming increasingly confident even as food and energy prices are moving higher, according to the news source. This development helps support the notion that the pickup in business conditions has been growing stronger.

Financial institutions that want to get involved in loan sales at this time might want to speak with Garnet Capital Advisors, which has significant experience in this space.