Garnet Capital Advisors Blog

April 4, 2014

Job growth could help spur loan origination by providing boon to consumers

The U.S. economy has been creating jobs consistently for many months, most recently boosting payrolls in March, and sustained labor market improvement could bolster loan origination by putting more money in the pockets of consumers and making them more optimistic about the future and willing to borrow. 

If a higher number of everyday Americans maintain gainful employment, it will make it easier for them to get approved for mortgages. However, the high lending standards of banks could limit the impact of this job creation, as many mortgage applicants might get rejected in the current credit environment.

Employers add almost 200,000 positions in March
U.S. employers increased payrolls by 192,000 during the month, according to a Labor Department report. Data provided by the government agency indicated that in March, the unemployment rate stayed at 6.7 percent, unchanged from February.

Professional and business services added more than any other segment, bolstering its payrolls by 57,000 in March. Food services and drinking places created 30,000 new positions, while health care added 19,000.

Labor Department increases previous figures
In addition to the new jobs created in March, the Labor Department revised its figures for January and February, indicating that the nation created 144,000 net positions in the first month of 2014, and 197,000 in the second. As a result, the economy created 37,000 more positions than thought previously.

Over the last year, the nation's employers have created an average of 183,000 net positions each month.

Impact of wage growth
Another factor that could potentially motivate consumers to seek credit and drive loan origination higher is an increase in the wages that employers pay their workers. If their disposable income rises, they will have more to spend and have increased appetite to take on debt.

While organizations looking to hire have been able to pick and choose their new employees from a wide pool of applicants, and have therefore not been required to pay more compensation to be competitive, one economist believes that the tide could be turning, according to CNN Money.

Tom Simons, an economist with Jefferies & Co., told the media outlet his prediction that market factors might soon motivate employers to increase their wages.

"We'll be eclipsing the prior peak [for private sector jobs], and finally entering the expansion part of this recovery," he said, according to the news source. "We think this is a very significant milestone."

This development could also help improve the situation of many consumers, and make them more likely to seek out credit.