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April 6, 2018

Improving Consumer Confidence Provides Opportunities for Banks

Several sources report that consumer confidence continues to improve in multiple areas, which provides a unique opportunity for lenders to make and buy new loans, provided the loans are of the right quality.

Despite some challenges in the financial markets early this year, several sources report that consumer confidence remains at some of its highest levels in recent years. Reports from the Federal Reserve and the University of Michigan, both of which regularly gauge consumer sentiment, showed positive results in many areas. For banks, this is an excellent environment to make or buy loans provided they are ones of good quality.

The latest figures from the Federal Reserve reveal that U.S. consumer confidence is up.

The Federal Reserve Reports on Rising Consumer Confidence

The Center for Microeconomic Data with the Federal Reserve Bank of New York released the results of its February 2018 Survey of Consumer Expectations (SCE) on March 12. The survey reveals that consumers have a positive sentiment about their personal financial situations.

The SCE provides regular insight into how Americans view their financial situation, job prospects, as well as their sentiment for the future. It is an online survey that rotates among 1,300 heads of household that is meant to give nationally-representative figures. Some of the most notable figures in the latest survey relate to the way that consumers view the labor market and income growth prospects, their current financial situation, and their attitudes toward debt.

Fewer people expect to be unemployed one year from now than they did last month. Across all demographic groups, the mean probability of respondent's perception of job loss and voluntarily leaving a job over the next year declined from 14.9 percent to 12.8 percent and from 22.1 percent to 21.4 percent respectively. 

Respondents not only overwhelmingly expect to hold onto their jobs, but they also expect to make more money in the coming year. Median household income increases of 3.0 percent are expected over the next year, compared to just 2.8 percent in January.

Consumers also have higher confidence when it comes to household financial matters. 40.2 percent of respondents feel that they are currently better off, which is the highest level since the survey began in 2013. Looking one year out, just 10.2 percent of those surveyed expect to be worse off, compared to 12.5 percent giving this response in January.

Fewer consumers also expect to miss debt payments over the next three months, with a response of 11.6 percent compared to the 12.3 percent result in January. 

The rise in consumer confidence provides a positive lending environment for banks.

Consumer Sentiment Reaches Its Highest Level Since 2004

The University of Michigan also regularly tracks consumer confidence and reported on March 16 that the figure had hit a 14-year high due to optimism from lower-income households. The preliminary index for March was 102, up from 99.7 in February. This was also a 5.3 percent increase year over year. While sentiment declined for consumers in the top third of income distribution, it increased in the bottom third on optimism about the economy.

Partner with a Loan Sale Advisory Service to Maximize Results 

Now that many consumers have a positive outlook on their financial future, banks can capitalize on this by making and buying the best loans for their portfolios. A whole loan broker can help your firm assess your current mix of loans and provide opportunities to buy and sell loans in various asset classes. Sign up for our newsletter to learn more about how a loan sale advisor at Garnet Capital can help your business.