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Borrowing activity could rise with increased consumer spending

Jul 05, 2013 Quinn Thomas

With Americans showing more confidence in the economy, personal expenditures picked up in May.

As spending activity increases, additional borrowing is likely to follow, so short term lenders might want to prepare for an influx of applications as consumers become more confident.

According to the U.S. Department of Commerce, consumer spending was up 0.3 percent in May, following a 0.3 percent decline in the previous month. This was partially fueled by the 0.5 percent bump in personal incomes.

"Consumer spending will continue to be the driver of the recovery," Tom Simons, economist at Jefferies LLC, told Bloomberg. "The second half looks better. The labor market is continuing to improve. The housing rebound will help as well."

The bump in spending was also helped by surging consumer confidence in May. The Thomson Reuters/University of Michigan Index of Consumer Sentiment increased to 84.5 from 76.4 in April and 79.3 last year at this time.

Higher stock and home prices helped push sentiment levels to those not seen in five years.

"Housing is improving, house prices are rising, gasoline prices have been a support for much of this year to confidence, and we have stock prices that have climbed - I think all of that is helping to lift consumer sentiment," Ryan Sweet, senior economist at Moody's Analytics, told the news source.

Americans also showed more confident in the present and future as well, with marked increases in the Index of Consumer Expectations and Current Conditions Index.

Consumers continued to have positive thoughts about the economy into June, which could lead to more spending and borrowing activity in the final month of the second quarter.

As a result, short term lending could be in demand, so these financial institutions should prepare employees for a heightened level of applications so mistakes don't occur that could hold up the lending process.