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Borrowing activity could pick up with improved consumer spending outlook

Jul 03, 2013 Philip Burgess

Consumer spending is expected to pick up in the near future, potentially signaling increased borrowing activity at short term lenders and other financial institutions.

The Deloitte Consumer Spending Index, which tracks cash flow as an indicator of future consumer spending, increased to 4.27 in May, up from 4.12 in the previous month.

The index is comprised of four components, three of which improved in May. The only one that didn't was tax burden, which was unchanged from the previous month.

"Three out of the four components of the Index contributed to an uptick in May and have stayed on a moderate and steady track of improvement over the past several months," said Daniel Bachman, Deloitte's senior U.S. economist. "The labor market has stabilized, and initial unemployment claims fell nearly six percent since this time last year, while real home prices continued to climb and real wages crept up."

Another positive sign for the future of consumer spending is surging confidence. The Thomson Reuters/University of Michigan Index of Consumer Sentiment jumped to 84.5 in May, up from 76.4 in the previous month and 79.3 a year ago.

Two of the major factors that led to the confidence boost were rising stock and home prices, giving consumers more faith in their financial situations.

"Back-to-back monthly gains suggest that consumer confidence is on the mend and may be regaining traction it lost due to the fiscal cliff, payroll-tax hike and sequester," Lynn Franco, director of economic indicators at The Conference Board, told CNN Money.

As consumers begin to show more faith in the economy, short term lenders should prepare for additional business, as these conditions often lead to increased spending.