Garnet Capital Advisors Blog

April 28, 2014

Stronger economic growth could bolster loan origination and impact loan sales

U.S. economic growth seems to be picking up, and this development could affect both loan origination and loan sales by bolstering the sentiment of consumers and the demand for credit.

Experts predict faster recovery
Several experts have predicted that the current expansion will speed up, and participants in a recent Bloomberg poll estimated that gross domestic product's growth rate will be at least 3 percent for the rest of 2014, as well as 2015 and 2016.

Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York, has forecast that the nation's economy will expand at an annual pace of 3.5 percent over the next three quarters, the media outlet reported. He also said that a 3 percent growth rate is reasonable for 2015 and 2016.

"A lot of the headwinds that are holding the economy back are beginning to abate, including local government spending, fiscal tightening and household balance-sheet deleveraging," the market expert stated, according to the news source.

At the same time these factors are becoming less of a drag, the U.S. recovery is currently benefiting from several tailwinds. Inflation has remained modest, and this has made it easier for the Federal Reserve to maintain its stimulus.

Labor market improves
The labor market has been growing stronger, with American employers creating 192,000 net positions in March and 197,000 in February, according to The Associated Press. As a result of these improvements, the U.S. has replenished all the jobs it lost during the financial crisis.

A strengthening labor market could have a key impact on loan origination by putting more money in the hands of consumers and bolstering their optimism. If they take on more debt, there will be a greater supply of credit that could serve as the basis for loan sales.

Beige Book data strong
Another factor that points to strengthening business conditions is Federal Reserve data showing that manufacturing activity in the Philadelphia region picked up in April. The manufacturing index for the area rose to 16.6 during the month. This figure was the highest since September.

While many domestic factors show that the U.S. recovery is speeding up, a pickup in global growth could also help fuel this acceleration.

Impact of faster global recovery
Earlier this month, the International Monetary Fund predicted that the global economy could expand by 3.6 percent this year, 3.9 percent in 2015 and 4 percent in 2016. Any of these would be stronger than the 3 percent growth rate that the world experienced last year.

"The recovery which was starting to take hold in October is becoming not only stronger, but also broader," Olivier Blanchard, head of the IMF's Research Department, said in a statement. "Although we are far short of a full recovery, the normalization of monetary policy - both conventional and unconventional - is now on the agenda."

Financial institutions that want to get involved in loan sales during this time of strengthening economic conditions might consider Garnet Capital Advisors, which has significant experience in this particular area.