March 28, 2014

Surge in consumer spending could push lending higher

A recent surge in spending could mean a rise in consumer confidence, which could result in them seeking more credit.

If consumers start applying for more loans, this development could impact debt sales simply by affecting supply-demand fundamentals.

GDP figures push higher
During the final quarter of last year, inflation-adjusted gross domestic product grew at an annualized rate of 2.6 percent, according to revised Bureau of Economic Analysis figures. This estimate was higher than the previous, which showed GDP rose by 2.4 percent during the last three months of 2013.

"The data suggest that the economy had slightly more momentum than previously thought before it was hit by extreme weather at the start of 2014," Chris Williamson, chief economist of Markit Economic Research, told USA Today.

As a result of this upward revision in economic growth, GDP figures for the full year moved higher, the media outlet reported. This yardstick of economic growth rose by 2.6 percent during the 12-month period, which exceeded the previous estimate of 2.5 percent growth for 2013.

Consumer spending spikes
An increase in consumer spending was the largest contributor to the pickup in growth. During the period, this measure increased by 3.3 percent. As a result, this indicator had the largest gain in three years, according to The Wall Street Journal.

Many believe that economic growth will accelerate in 2014, and the improvement in consumer spending helps support this expectation, the media outlet reported. Volatile weather conditions undermined the recovery earlier this year. However, the strong spending figures support optimistic views that shopping will pick up as spring arrives.

David Berson, chief economist at Columbus, Ohio-based Nationwide Insurance, told Bloomberg News his prediction that the recovery will accelerate later this year.

"The underlying strength in the economy is reasonably good and was accelerating before we had the bad weather," Berson stated before the BEA report was issued. "Once we get past the first quarter and we get a real GDP reading, in the second quarter we should see a rebound."

Retail sales moved higher in February, after suffering a substantial decline in January, according to The Wall Street Journal. However, while this key measure suffered a drop during the first month of the year, Karen Hoguet, chief financial officer at Macy's Inc., recently told investors that severe weather events make it challenging to measure consumer confidence.

She emphasized that the major retailer has been doing "extremely well" in areas like Southern California, which have not suffered a lot of bad weather, the media outlet reported.