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Strengthening employment situation could boost consumer borrowing

Aug 04, 2013 Philip Burgess

Conditions for consumers have been improving in the past couple months with the economy showing signs of momentum. One of the biggest factors has been the strengthening employment situation.

As Americans become more confident in their jobs and the economy improves, spending levels generally pick up. With consumer expenditures increasing, borrowing activity at short term lenders could follow suit.

July another strong month for the jobs market
The employment situation continued to gain steam in July, with the private sector adding 200,000 new positions, according to the ADP National Employment Report. June's increase was revised from 188,000 to 198,000.

By company size, small businesses led the way at 82,000 jobs, followed by medium and large firms. The services providing sector continued to dominate with 177,000 new positions, much higher than the 22,000 created in the goods producing sector. The only industry that didn't show improvement was manufacturing, which posted a 5,000 decline.

"Job growth remains remarkably stable," said Mark Zandi, chief economist at Moody's Analytics. "Businesses are adding to payrolls in most industries and across all company sizes. The job market has admirably weathered the fiscal headwinds ... and government spending cuts. This bodes well for the next year when those headwinds are set to fade."

High confidence levels another positive sign for the economy
Consumer sentiment hit a six-year high in July, which is another indicator that spending and borrowing activity could pick up in the near future.

The Thomson Reuters/University of Michigan Index of Consumer Sentiment reached 85.1 in July from 84.1 in the previous month and 72.3 a year ago. This gain marked the third consecutive month that confidence levels have been higher than in any month since July 2007.

"The labor market's better, you're seeing home prices rise, you're seeing equity prices rise, so there are a lot of things out there to be positive about," Brian Jones, senior U.S. economist at Societe Generale, told Bloomberg. "If you think about the things that drive consumer confidence, they should be rising as well through the end of the year."

Surveys of Consumers chief economist Richard Curtin said Americans have done a good job of withstanding fiscal headwinds thus far.

Borrowing activity could rise with a strengthening economy
Just a few years ago, Americans were wary about opening new credit cards and taking out loans, as many were still spooked from the financial crisis. However, now that the economy is showing signs of improvement, consumers are likely to spend and borrow more.

As a result, demand for short term lending could rise in the coming months. This form of lending comes with some major benefits for consumers, especially if their consumer credit scores have been damaged.

Short term lenders don't use traditional credit scores to approve loans, so even those with less than perfect credit can obtain financing. Additionally, Americans who are struggling to meet their monthly essential expenses can turn to this option as a one-time solution while they regain their financial footing.