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Budget deal could bode well for consumer confidence, lending outlets

Jan 07, 2014 Walt Wojciechowski

Short term lending companies and other credit providers across the country pay close attention to the spending and behavioral habits of consumers. In many cases, economic and political factors can have a significant impact on how much money consumers spend or borrow, often impacting lenders' business.

One such event that loan providers had to navigate recently was the shutdown of the government in October. With the absence of a federal budget, many industries saw a decline in business, which impacted millions of Americans. For example, the pause in activity meant that federal contracts could not be handed out, making it difficult for firms that rely on federal work to thrive.

According to Bloomberg, it resulted in a decline in consumer confidence. The source reported that the Bloomberg Consumer Comfort Index fell to a one-year low during November after the shutdown impacted a number of industries across the country. However, the most recent reading shows that consumers are starting to recover from the negative impacts of the shutdown, which could indicate a pending spike in loan activity and spending.

For the first week in December, the source's index climbed to minus 30.9, up from minus 31.3 in the previous period. It's a positive development that comes just in time for the lucrative holiday season.

Financial experts with the source stated that it's a step in the right direction but warned that sustained economic growth needs to be seen before a more robust recovery occurs.

New budget boosts optimism
However, a recent federal budget agreement will likely make consumers even more confident, as it could mean another shutdown may be avoided. A separate Bloomberg article indicated that the House of Representatives approved a budget earlier this month. The bill is expected to pass in the Senate as well, which would prevent a second pause in government activity in January.

For lenders, the agreement could prove to be lucrative. The previous shutdown was a challenging time for American consumers, forcing many citizens to cut back on spending and put off big ticket purchases such as new vehicles and homes. However, with a budget in place, Americans may ramp up their spending once again, which could be advantageous for loan providers.

In order to capitalize on the improving consumer confidence, lenders will need to take the necessary steps to make their products and services stand out from the competition. In particular, it may be beneficial for financial firms to leverage resources that make it easier for them to get active in the growing subprime loan market.