Consumer spending spike could be good news for lenders
Aug 07, 2013 Walt Wojciechowski
Growth in consumer spending may be a welcome development for short term lending enterprises and other financial institutions that may be able to capitalize on Americans opening their wallets more.
The Associated Press reported that the rate of consumer spending increased 0.5 percent in June, the most significant growth recorded in four months. In May, purchasing activity increased by a modest 0.2 percent.
According to the source, the development is an interesting one because income levels went up at a slower rate. In June, income grew by 0.3 percent, down from May's mark of 0.4 percent.
So far, consumer purchasing habits have been better than expected this year, with the source noting that the 2.3 percent increase in buying in the first quarter was higher than what analysts expected. In particular, the Federal Reserve's decision to keep interest rates low for many loans has been a factor in the increased willingness to spend money.
Apart from the Fed's actions, drivers of the increase in spending have been robust auto sales and a rise in gas prices, the latter of which is typical of the summer months.
The Washington Post noted that strong auto sales in recent months are largely a result of low interest rates. At 2.64 percent, the most recent average rate for 48-month car loans is much lower than mortgage and other long-term loan products, the source stated.
The AP noted that economists pay close attention to consumer spending because it contributes to about 70 percent of all economic activity in the United States.
As consumer spending continues to climb, lenders will be tasked with creating more attractive products as low-interest rates are sure to create a competitive marketplace. Banks and other financial firms that prove innovative are likely to beat out the competition.